Filing for bankruptcy

[SHRED]

My ex and her husband bought a home in 2006 on an ARM (adjustable rate mortgage). Not too bright. Here's the thing...they took out against the house to the hilt. Remodel, exotic vacations, car, etc...

It all fell apart after the crash in 2008 when the ARM started to balloon and the home's value took a big drop.

They declared bankruptcy and got their debt wiped out.
My question is...how was this debt absorbed? Through raised interest for the rest of us? By the lender? U.S. taxpayers? Combination?

I ask this because they are so damn quick to bash Obama as a "socialist" among other nonsensical rants against the "government" and I am looking for knowledge of just how big of hypocrites they are in getting their debt erased.

P.s...I just learned they bought another house. That was quick. I had know idea you could buy another place after only three or four years away from a bankruptcy.

[elleng]

1. I don't know the details, as to 'how was this debt absorbed,'

depends to some extent on to whom the debt was owed, but would say that their decisions have not been socially positive, just good for them. (I do realize that bankruptcy is and has been for a long time a legally acceptable way to deal with debt.)

[A HERETIC I AM]

2. The way I understand it, it's a "Write Down"

The actual money they were given with which they bought the house and everything else came from the sale of bonds.

Those bonds and billions of dollars worth of others were written down (not "off) such that their Par Value of $1000 a piece settled or will settle for, in some cases pennies on the dollar, if not default to zero.

The losers in that scenario were those individuals, mutual funds, pension funds, banks etc. that bought the bonds. That's where the debt was "absorbed" as you put it. They bought bonds they anticipated would pay interest for a specific length of time and at the end of that time they would get their initial investment back.

The result of this all was in part good and in part, bad.

The good is that lenders tightened requirements back to where they should be and as a result the quality of bonds issued in this sleeve are able to properly earn and be given better (higher) credit ratings.

The bad is that now it is much more difficult for many millions of Americans to get a mortgage and other high end credit.

[SheilaT]

4. A very long time ago a bankruptcy meant you

couldn't borrow money for a long time. Then all the banks and credit card companies figured out that if the previous debt had been wiped out, you now had the means to pay for new debt. The most the new creditor knows is how much debt was wiped out in the bankruptcy, and probably not even that. All they see is someone with a certain income and no debt.