Robin Rodriguez5 said:The availability of personal bankruptcy is going to significantly raise the risk profile for lenders, and that can only push interest rates in one direction. It works just like how interest rates spike when a country's credit rating drops.
Personal bankruptcy might be a win, but only in a functional country. We need to fix the systemic issues in the US before we start rolling out stuff like this, not the other way around. In our current mess, every second debtor would just declare bankruptcy. Have you seen those insane enforcement proposals? Like, they want to sell off a debtor's house, only for that person to end up living there as a tenant.
Honestly, it's pure stupidity. First of all, where did they get the idea that selling the property will actually cover the principal? And second, who besides the government is crazy enough to buy a house that comes with a protected tenant already inside?
If this bankruptcy legislation actually goes through without being completely overhauled, it’ll be repealed in no time.
Banks will likely try to find alternative ways to secure loans, but I doubt hiking interest rates will effectively mitigate risk. Raising rates only increases the likelihood that a debtor will declare bankruptcy, which is the last thing a bank wants. You can only conditionally shift the risk of default onto reliable payers by raising rates, because even those reliable people can eventually become defaulters, turning into a loss for the bank. I suspect that if bankruptcy laws are passed, it will primarily force banks to finally start vetting their clients—essentially deciding if a person is actually capable of repayment, which serves both parties in the long run. Until now, banks have been handing out expensive loans to everyone, assuming they'd find a way to collect regardless...
Ultimately, a bank will be more motivated not to drive a debtor into debt slavery, because once the debtor hits a wall, they'll just file for bankruptcy. But as I mentioned, other systemic issues need addressing before personal bankruptcy can be successfully implemented. For now, it's just pre-election chatter that shouldn't be taken too seriously. It's just the usual demagoguery, where politicians tell people drowning in debt that there's an escape route waiting for them, just like it is for the elites. Think about it... ☕
I wonder how they'll overlook the fact that banks will simply demand co-signers. Perhaps they'll write it into the law that if a debtor goes bankrupt, the pursuit of funds cannot be transferred to the co-signer. Maybe...