Giving bankruptcy judges the same right to help families with underwater home mortgages as investors now have will not create a flood of bankruptcy cases. Yet this is one of the arguments that opponents to S. 61 bandy about as a reason to kill the bill.
I see financially struggling families day in and day out about filing bankruptcy. They would rather be anywhere but in my office. Too often, they have let pride or irrational optimism keep them from exploring bankruptcy relief. They are reluctant to even learn about bankruptcy, much less make the decision to file.
I counseled three different new clients this week to stop paying on their credit cards as we prepared for bankruptcy. All three were horrified; two burst into tears at the thought of not paying what they owed. The instinct and the desire to pay what they owe is deep rooted in almost all consumers. Those who predict a flood of casual, opportunistic bankruptcy filers if mortgage modification becomes possible simply haven’t talked to real people in debt lately.
If there is going to be a flood of bankruptcies, it is because families have exhausted every financial source they have to keep their home: cash from credit cards; loans from 401(k); payday loans. The list goes on.
The availability of a bankruptcy discharge doesn’t cause bankruptcy; debt and despair cause bankruptcy.
How much better off would families be if bankruptcy could produce a real solution to the untenable home mortgage? Right now, the prosperous can cram down the mortgage on the vacation home or the rental properties. Why is the homeowner the only one barred from this relief?