In 2008, Bank of America acquired Countrywide Financial, a mortgage lending company that was heavily involved in subprime lending practices during the housing boom. Since the merger between the two companies, Countrywide has proven a costly addition to the Bank of America brand.

Since 2008, according to The New York Times, Countrywide has cost Bank of American tens of billions of dollars in legal fees in addition to other significant losses.

Now, media outlets are throwing around the question of whether or not Countrywide might attempt a bankruptcy filing to help ease some of its debt. Here’s a look at what some insiders are saying.

Business Bankruptcy Rules

If an individual was losing as much money as Bank of America, she would likely need bankruptcy protection. But businesses have different considerations and are governed by different laws than individuals. Consider these.

• Limited liability: One key element that might affect whether or not Bank of America chooses bankruptcy for Countrywide is whether it’s considered liable for the company’s losses. Business mergers commonly include provisions that limit the legal responsibility shareholders (and the other business) have for the acquired business’s debt. If these laws apply, Bank of America may not need bankruptcy for Countrywide.
• Consolidation transactions: But there’s a chance the limited liability laws won’t apply in Bank of America’s case. That’s because the bank apparently engaged in a series of complicated transactions upon its acquisition of Countrywide to transfer its profits and debts to various subsidiaries.
• Acquisition of notes and debt: In addition to the consolidation moves, Bank of America also reportedly took on some of Countrywide’s debt and assets. This further complicates the question of whether or not Countrywide remains separate enough from Bank of America to qualify for bankruptcy on its own.

Many of the complex manipulations between Bank of America and Countrywide came to light when insurance giant AIG filed a lawsuit against the bank insisting that it is liable for the mortgage lender’s debts.

At its heart, the question of bankruptcy is one of separation and commingling. Think of it this way: Countrywide’s financial distress could have been, to Bank of America, like a frostbitten limb. If amputated in time, the rest of the body could have been saved.

But because Bank of America reportedly allowed its healthy parts to mix with the troubled parts, separating the bad stuff from the good stuff might not be so simple. Many analysts have suggested that, because of the complexity of the maneuver, bankruptcy for Countrywide is an unlikely option.

Mortgage-Related Bankruptcy for Individuals

Unfortunately, the potential bankruptcy of Countrywide holds no real poetic justice for those who turned to bankruptcy because of unaffordable subprime mortgages. Rather, the financial faltering of an entity as large as Bank of America is just another symptom of a woebegone economy whose problems started in the housing market.