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Homeowners would benefit from expanded capabilities in bankruptcy

Many Tennessee homeowners have been hit hard by the weak residential real estate market. Large mortgages and deflating property values have left many families in search of a solution to shed some of their debt in order to protect their homeownership.

Filing Chapter 13 bankruptcy may be a solution to reorganize and pay down debt, but some observers believe the protections currently offered under bankruptcy do not go far enough. In the case that a Chapter 13 filing is unsuccessful, the bankruptcy may be converted to Chapter 7, which typically includes full-scale liquidation of assets and property in order to pay back creditors.

Though bankruptcy is often helpful and provides legal protection of the courts, having additional options within the process would be helpful. Unlike homeowners, commercial real estate owners have the ability to "strip down" their property values. This allows these individuals to lower the value of their properties, reduce debt and work toward financial security.

If homeowners had the legal ability to strip down the value of their property, they could effectively reduce their debt and more comfortably work toward a fresh start. At the same time, if this ability was afforded, more people would be likely to file bankruptcy when they are overwhelmed by debt.

Meanwhile, many families continue to feel the squeeze of a stagnant housing market and weakened job market. The good news is there are ways to use current bankruptcy and debt relief regulations to a person's benefit. As homeowners discover their options to pay back or discharge debts, they are establishing themselves to feel more secure.

The big-picture impact of homeowners feeling insecure about their underwater mortgages is that it is holding back the national economic recovery. If individuals are overburdened by debt, they are unlikely to feel comfortable making purchases and investments. So long as consumer spending remains in this tentative state, economic growth will not accelerate.

Source: MarketWatch, "Unfairness to homeowners blocks recovery," Richard Gibson, May 9, 2012

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Mark T. Young & Associates
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