Economists of every political stripe agree that our recent recession and lackluster recovery arose from a collapse of real estate markets in cities all over the country. Homeowners are either stuck in properties worth less than what is owed on them, while other homeowners have just walked away. The result is a landscape where real estate has lost its liquidity and banks are afraid to rely on real estate to extend needed loans, thereby freeing up the capital markets.
A few years ago, a several members of Congress floated the idea of
empowering bankruptcy judges to “cram down†mortgages to equal the fair market value of the underlying real estate. Currently bankruptcy judges can, with some restrictions, cram down auto loans and other secured debt to fair market value in Chapter 13. From my perspective as a bankruptcy lawyer, this cram down power does a lot of good. Debtors can now afford to keep their vehicles, and thus their means to and from work. The used vehicle and used furniture market is not depressed with excessive inventory of returned property and more people are able to reorganize rather than liquidate.
