Susanne Robicsek’s post on the futility of keeping a home through bankruptcy brought to mind Professor Brent White’s paper on the use by government and financial counselors of fear and shame to keep people paying on mortgages on underwater homes.
White cites a litany of messages from apparently credible sources who chant that a foreclosure will scar your life forever onwards. Further, these messages suggest that the law and morality require that you pay for something that no longer has value or no longer makes economic sense.
Somehow, I didn’t hear that electing to default on a mortgage was immoral when a couple of huge real estate investment companies walked from projects in New York. Is it immoral only for individuals, but just good business for corporations?
I see my job as a bankruptcy professional to ask the client to consider walking away.
- Is the house genuinely affordable now?
- Will the loan reset making it unaffordable in the future?
- How much would the housing market have to appreciate just to be able to sell it for what you owe?
- Do you want to take a further credit hit down the road when you need to leave this house?
Given the breadth of the current financial morass, I have doubts that what we take as gospel about the future availability of credit to those filing bankruptcy will be the rule in the future. I doubt that credit availability will return to the norms of the past two decades anytime soon. Who knows what the rules will be in the future?
I have to ask clients: just what kind of financial pain are you prepared to endure in the expectation that the old rules will prevail?