With rising mortgage delinquencies, we will see an increase in the number of bankruptcies. The bankruptcy law changed in 2005 to discourage homeowners from seeking bankruptcy protection. If a homeowner files chapter 13, they will still be liable for their mortgage loan. In other words, the loan must be paid or the homeowner will lose their home.

The problem is many lenders issued adjustable rate and other flex-type mortgages during the housing boom. The law gives no protection or aid to borrowers who should have never received a loan on the home in the first place. Now you may think that’s their problem. True, people bit off more than they could chew.

But think about the effect this will have on our economy–potential tax increases for everyone and the possibility of a real recession. This could be a disaster and put the national economy on a roller coaster ride.

I am not saying people should be able to get off “scott free,” but perhaps the government should reform the law to provide some insurance for borrowers who can’t repay their debt due to circumstances out of their control.

This entry was posted on Monday, August 27th, 2007 at 4:03 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.