Who ever would have thunk it.

Creditors are discovering that bk reform may not be exactly what they had hoped for. I got the impression in 2004 – 2005 that the creditor community seemed to think that if it were just more difficult and more expensive to file for bankruptcy, then debtors would just pay their debts instead. Hello?

Well, now Credit Suisse has published its March 8, 2007 Subprime HEAT Update finding that when the bankruptcy code makes people pay their general, unsecured creditors; there is less money to cure mortgage defaults. You have got to wonder how much they paid a room full of statisticians and MBA’s to come up with that conclusion.

I do think that some of Credit Suisse’s conclusions are driven by technical rather than financial problems with the new BK Code. The means test is a game, and it has to be played like one. We are just now starting to get the basic rules worked out. There is no question that two different debtors with identical financial pictures can both file under Chapter 13 and be required to pay wildly different amounts — because of the means test.

Debtors who are able to put together the information and documentation necessary to fully complete the means test to their best advantage and who hire attorneys willing and able to guide them through the tricks and the turns are paying significantly less than identically situated debtors who aren’t as able. That means that a debtor’s ability to produce documentation and choice of bankruptcy attorney can make the difference between being able to cure default on a house or lose it to foreclosure. It also can make the difference between a debtor being able to survive a rate increase on an ARM or otherwise continue to make mortgage payments in the face of other debt.

Something tells me I’m in a growth industry.

Elaine