@Stuart:

There is and always will be a lack of uniformity in how judges handle many bankruptcy issues. This is actually by design - while the Bankruptcy Code is a set of federal laws, there is a large, intentional interplay with State laws. For example, exemption and exclusion rules vary greatly from state to state, and they always have. This reflects the regional differences in how State Legislatures view debts and obligations - the States can make changes to their rules (in California, most of these rules are in the Code of Civil Procedure), and the BK courts in that state will adjust how debtors are treated accordingly.

As far as judges acting like little despots, I don't know about your experience, but from my own experience appearing before judges, they are usually thoughtful, take their responsibilities seriously, and mostly want to get matters through the system and off their calendars.

Frankly, compared to lenders acting like little despots, I would much rather take my chances with the judge.

@Wendy:

Thank you for your post. In answer to some of the points you raise, please consider the following:

In reality, the risk of "trumped up hardships" is very small, especially after the 2005 amendments to the Bankruptcy Code. In fact, under the current rules, some people who really do need the protection of the bankruptcy system cannot find relief - and all because mortgage bankers and credit card companies spent millions lobbying Congress for the 2005 changes.

As far as the "worth of a contract," our deeply rooted notions of fairness and due process require us to consider the value of an asset offered up as collateral for a secured obligation. If the collateral's value is less than the debt it secures, then it is fundamentally unfair to treat the debt as though it's worth its face value. After all, would you pay full value for a $500,000 home loan secured by a home worth $300,000?

These notions of fairness are not just words. To give you an historical perspective, around the time our Constitution was being written, back in England people were forced into Debtors' Prisons, Work Houses, and into indentured servitude because of debt problems. Our founding fathers saw this issue as something to avoid in the United States - that's why Bankruptcy is specifically mentioned in the Constitution. Perhaps the better question is this: should regular people have to work themselves to death or exhaust their retirement savings, just to keep some bank off their backs? In America, the answer to that question has generally been "no."

Regarding your final question about investors thinking twice, I agree with that sentiment 100%. Investors should have thought twice during the real estate bubble.

The sad truth is this: trillions of dollars in international investment money were all looking for a home, and as a result, investors were willing to take bigger risks just to park their money somewhere. Wall Street did to residential mortgages what had already been done (and successfully, I might add) with commercial real estate loans by securitizing them. The dirty little secret is that Wall Street sold these securities by telling investors "Hey, these are backed by home loans, and market values are rising at double-digit rates. Besides, everybody pays their home loans, and everybody needs shelter." ...Famous last words.

The problems were 1) money became too available in general, 2) anyone who could fog a mirror could get a home loan, 3) eager investors didn't do their homework, 4) investment sponsors downplayed default risk and focused instead on the artificially increasing home values, and 5) homeowners bought in to the whole "it's okay, put your equity to work for you, you can always sell later if you have financial problems" line of reasoning.

Sound investment requires understanding and limiting risk. In this case, investors got it wrong, so shouldn't they bear some of the pain of the current meltdown?