Analyzing the results of a new study conducted by the University of Iowa may seem to Los Angeles bankruptcy lawyers like locking the barn doors after the horses have bolted. The study finds that up to 25% of Americans who filed for bankruptcy in 2007 might have been able to avoid bankruptcy if credit limits were still at the levels they were in the 1970s.
The study was conducted by a University of Iowa sociology professor. According to the study, when you look at the number of people who filed for bankruptcy since the housing crisis hit in 2007, and look back at numbers from the 1970s, it is apparent that many of these people would not have been in this position if credit limits were still at 1970s levels.
Back in the ‘70s, a person could not get a mortgage of more than 30% of his or her income. Car buyers could not take out a car loan that required monthly installment payments of more than 10% of their income. In other words, people were loaned money based on their capacity to pay back.
As any Los Angeles bankruptcy attorney knows, things changed dramatically over the next couple of decades. Banks began lending money indiscriminately to people who could not afford to pay back these loans. Banks then immediately started selling off those loans in order to protect themselves.
Many of the people who took loans in 2007, when the housing bubble was at its peak, were high-risk borrowers whose chances of paying back the loans were slim. This has resulted in thousands of foreclosures over the past three years.
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