Mortgage Crisis Sparks Foreclosures Which Lead to Bankruptcies

18 Aug Mortgage Crisis Sparks Foreclosures Which Lead to Bankruptcies

Call it what you will–a perfect storm, dominoes falling, an avalanche, a wildfire. In fact, the aphorisms just roll off the tongue, uh, keyboard. But the facts don’t change:

The mortgage crisis that sparked a wave of foreclosures is now responsible for a rising tide of bankruptcies….

“Rising tide…” That’s another one. Real estate markets have tanked before, and bankruptcies filings have risen before. What seems to be the source of wonder in the present series of events is the willingness of homeowners to walk away from the homes they own. Personally, I don’t find it all that surprising.

One of the reasons for the foreclosure crisis was the selling (and over-selling) of the American dream of home ownership. One might even say “hyping.” People who had never been eligible for mortgages before were sold on the idea of owning their own homes. Now the same people who did the selling and didn’t bother to explain what would happen to those mortgage payments, or reassured homeowners that they would qualify for better terms down the road, express surprise that those same homeowners, buried under a mountain of debt (sorry, there’s another one) would give up their homes.

It isn’t surprising when those of us who live in the real world, have incomes that are not boundless, and expenses we have no choice but to meet, would choose to give up a home we can no longer afford. If that is the situation, that decision is a sound one. It’s better to make a clean break, rip off that Band-aid, throw out that bad apple–well, I’m doing it again. But before you get talked into making that decision (the same way you may have been talked into that mortgage in the first place, without enough information) put yourself the trouble of getting some expert advice on whether surrendering is the only option. Some of the increase in bankruptcy filings is no doubt due to the large deficiencies many homeowners face after bankruptcy. But many more people are filing Chapter 13 in order to reorganize their debt and keep their homes. There may also be defenses to foreclosures or other options available. I spend a fair amount of my time talking to homeowners about their homes, mortgages, and budget. If it’s silly to try and keep a home, I’ll tell you that. But what’s really silly is to walk away without talking to someone who can explain all your options.

Many mortgages are set to begin adjusting in the next couple of years. Even if you’re okay now, but you see trouble coming in the future, it’s a good idea to see someone who can advise you now. I agree with New York foreclosure defense lawyer Jay Fleischman: “I really think things are going to get a lot worse before we see any light at the end of this tunnel. (See, he’s doing it, too.)

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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