One cause for bankruptcy filings is less obvious than others. Home mortgages are a large and important sort of debt for most, but buying a home is not what causes bankruptcy. The main culprit is change. Since the late 1940's we have been taught that owning our home is a smart investment, provides long-term financial security, along with the added social acceptance and a nice tax break.
Fast-forward to today and we discover rising interest rates, stagnant incomes, higher property taxes, and other increasing housing costs making home ownership a greater risk for people who can no longer be sure of income stability.
Home ownership, combined with the need to follow the jobs, taking out second-mortgages to pay for college tuition or braces, and a stagnant or declining housing market have combined to move owning a home into the liability column in the family balance sheet. Another recent and alarming trend is the rise in using second and third mortgages to pay off credit card and other debt.
Homeownership remains one of our most visible signs of respectability and acceptance into society. Families in bankruptcy often want desperately to keep their homes and stop foreclosure. Their bankruptcy filings are often an attempt to eliminate other debts so they can redirect their shrinking incomes into their mortgage payments. Hanging onto a home may no longer make sense economically. Many struggle to hang on and save this important part of their lives when all the signs are telling them to let it go.
Change, as mentioned previously, is also the answer to reversing the growing bankruptcy trend. Unfortunately change is not always easy or readily accepted by some. People become comfortable with homeownership, and their new position in society. Human nature being what it is causes us to resist anything that may disturb our status quo, or literally "the way things are."
Those who embrace the idea they must make needed alterations to their spending and lifestyle habits will likely manage to weather the current economic uncertainties. Those who ignore the signs may likely lose it all.
While most people across the country saw a boom in the real estate economy and double digit equity gains, these same people are seeing major declines in housing values and having a hard time making ends meet. However, some homeowners are finding other options to their home debt problems like modifying their loan or refinancing their mortgage out of an adjustable rate mortgage. Others are working with short sale experts to find a buyer and have their debt reduced. Selling is not even an option for a lot of homeowners rendering bankruptcy an unfortunate means to an end. With the declining housing market an increase in bankruptcy filings is inevitable. |
