Popular opinion and personal viewpoints are mutually exclusive ideas. There are times when the two overlap but a true personal perspective is driven by real life, personal circumstances and is not always at the behest of popular or even rational thought. Popular opinion relates to generalities. As a framework, what moral guidelines should we follow as a society to establish order and maintain peaceful coexistence? Personal views tell us if, in the heat of the moment, with the additional emotional burden of personal experience added to the situation, our answer would be the same? The issue of Strategic Defaults creates such a moral dilemma. Most agree that it is morally reprehensible to blatantly disregard commitments or contracts. Regardless of whether it’s a nickel on the playground or a million dollars in the boardroom our social contract is that both parties are bonded by trust and an expectation that each will follow through on their pledge. To that end most would generally agree that Strategic Defaults are wrong. But what if it were you? What if you came to realize similar behavior was acceptable from someone other than you? What if your choice directly impacted the comfort and well being of your children? What if walking away from an upside down mortgage was socially acceptable? How would you decide what to do?
Let’s first consider why banks lend at all. Business. They want to make money. Simply put they have identified a need in the market (capital) and have devised a way to benefit (profit) by delivering their product (money) to the marketplace. They provide a fundamental service to our capitalistic system and without it we would fail. If you were to buy any type of real estate other than your primary residence you would notice that your lender would require a larger down payment and likely charge you a higher interest rate. The reason for relaxed standards when buying your primary residence is two-fold. First, the federal government has decided that widespread homeownership is a social benefit to society. Second, the banks understand that shelter is a basic need. Thus if things go bad, you are less likely to walk away from your home than any other real estate asset. Throughout most times in recent history, banks would not lend to everyone. Interest rates were related to the banks cost of funds, and a borrowers credit worthiness. However in the past decade lenders threw caution to wind. Loans were given to borrowers without requiring proof or documentation supporting the stated income on their loan applications and haphazard policies were in place to insure the banks were lending against collateral that could support the loan. Unadulterated appreciation is the elixir that makes every loan look safe, every investor look like a genius, and allows every homeowner to feel safe in their decision to pay just a little bit more than they could afford. In moderation these cycles of growth do no harm and are always followed by periods contraction allowing market fundamentals to catch up with values. However unabated for too long, we find ourselves unable to absorb losses without devastating impacts across the economy. Someone is always left holding the bag. From the banking perspective, good banks absorb bad banks, certain lending practices come to an end, losses are taken and passed along to shareholders or the taxpayers, and the whole cycle of calculated risk is started again.

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There are some personal belongings that can be protected during bankruptcy proceedings. During bankruptcy, house seizure is common unless you have the law expertise on your side to navigate paperwork and proceedings toward keeping your home. The most common form of bankruptcy is Chapter 7. This is also referred to as liquidation. All assets are made liquid and used to pay for debts claimed on the filed paperwork. Remaining account balances are written off and the bankruptcy discharged. Court systems love to capture your bankruptcy house because a large sum of money can be earned based on the available equity in the home and the total mortgage left to be paid. In some cases, the debtor could have a mortgage in good standing and the home is taken during liquidation because paperwork was not filed by a bankruptcy professional. Creditors do not care where money is received from as long as the majority of the bills the debtor owes are paid. While bankruptcy petitions can be filed by individuals, there are many schedules, time limits and court meetings that should be controlled by someone who has experience with assets and laws. During bankruptcy, house loss does not have to be a part of the agreement. Lawyers can help the debtors to keep all important assets including their home. Chapter 13 bankruptcy works a bit differently than Chapter 7. During a Chapter 13 proceeding, assets and bills are reorganized and debtors have an opportunity to pay all debts in full or a portion of the debts. While this form of bankruptcy does not include liquidation of assets, the debtor still has to pay the balance to the court or they risk losing their home. Bankruptcy professionals can work with court officials to lower payments to a comfortable level. This helps to ensure the court does not get another bankruptcy house from your Chapter 13 filing.

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