Bankruptcy & The Great Recession
by
Michael C. Fallon on Aug. 04, 2020
Summary: During the Great Recession that started in 2007 there were more than 3 Million homes lost to foreclosure.
During the Great Recession that started in 2007, there were more than 3 million homes lost to foreclosure. During the Great Recession, there was an unprecedented number of bankruptcy filings by those homeowners and those who were not able to pay their credit card debt, personal loans, and medical bills. There are economists who have forecasted that the current economic crisis will bring about a similar number of foreclosures and bankruptcy filings. It does not have to be so.
The loss of so many homes could have been avoided if the mortgage lenders had allowed the homeowners to modify the defaulted loans by either reducing the interest rate, adding the defaulted payments to the principal, or by allowing for payment when the loan matured. Credit card companies could have reduced or eliminated interest rather than double, and sometimes triple, the interest charged. Within the past seven or eight years many mortgage lenders have come to realize it makes good economic sense to modify a loan rather than to foreclose. Not all credit card companies have seen the wisdom of working with consumers, but many have.
With the loss of so many jobs and the inability to pay one’s creditors today does not mean that one must file bankruptcy or lose their home. However, to avoid the dyer consequences of defaulting on one’s obligations a person must open a dialogue with the people to whom they owe money - the landlord, the mortgage lender, the credit card company, the medical provider - to explain why they have fallen delinquent and how they will cure the default once they have returned to work. The small business owner must stay in regular communication with their landlord and their vendors if they hope to revive their business after the shelter at home orders have been lifted. Not every landlord, mortgage lender or credit card company will be willing to work with the consumer or the small business owner, but if individuals and small business owners do not make an effort to reach an accommodation with their creditors it is probable we will again see a large number of foreclosures and bankruptcies, many of which could be avoided with open
communication.