Orange County Bankruptcy Lawyer Blog

Changes to the U.S. bankruptcy laws in 2005 could be partly responsible for the meltdown of the real estate market, several California researches argue.

As our Los Angeles bankruptcy attorneys reported recently on our Orange County bankruptcy Blog, the number of California bankruptcies has skyrocketed, from 34,000 in 2007 to an estimated 120,000 this year.

The 2005 law toughened the restrictions for filing Chapter 7 Bankruptcy, which eliminates most types of consumer debt. Under the new law, consumers who don't meet a certain debt-to-income threshold can be required to establish a repayment plan. But perhaps the biggest impact reform had is in scaring struggling consumers and homeowners from seeking the help they need and deserve. Consumers who are facing financial difficulty should consult an experienced Los Angeles bankruptcy lawyer as early as possible to discuss the best course of action for regaining solid financial footing.

Now officials are questioning whether the resulting squeeze on consumer budgets helped cause the meltdown, according to a report by FOX News. The report cited three prominent economists -- including Michelle J. White of the University of California at San Diego and Ning Zhu of the Graduate School of Management at the University of California.

“Bankruptcy reform squeezed homeowners’ budgets by raising the cost of filing for bankruptcy and reducing the amount of debt discharged in bankruptcy," the economists argue. "It therefore increased mortgage default by closing off a popular procedure that previously helped financially distressed homeowners save their homes.”

They content bankruptcy reform immediately increased foreclosures by 200,000 per year and has had a snowball effect as the economy worsened.

An experienced attorney can protect your rights under the law and help ensure the future financial well-being of you and your family. Bankruptcy remains a powerful and effective tool to protect consumers.