Here is how I would have written the same headline: “Supreme Court Says Pay What You Owe.”
In a 9-0 decision the court said that when a homeowner is underwater, secondary loans such as home equity loans and second mortgages, cannot be automatically discharged, simply stripped off, in chapter 7 bankruptcy.
Stupidity, greed, or a lack of knowledge is no excuse. If you sign a document and take the loan, you have an obligation to pay it back.
Bankruptcy exists to help people who get in trouble and is used correctly every day. The court’s decision doesn’t say that these loans can never be discharged, just that it’s not an automatic thing. Why should it be?
Sophisticated financial transactions are available to everyone but too many people don’t take them seriously enough. Too many people don’t give themselves any wiggle room, don’t plan for the unexpected. As I say in What Next, “it’s not the plan for the expected that saves you, it’s the plan for the unexpected that does.”
Here are my rules of thumb:
If you can’t afford 20% down, you can’t afford the house
If you can’t afford the mortgage on one salary, you can’t afford the house
If you take a second mortgage you should be able to pay it off quickly
If you take a a home equity loan it should be related to the house, not for something like a car or boat
Are some of these difficult to get to? Yes, but sticking to these rules will set you up for success down the road.
Posted in General, Money, Success and tagged bankruptcy, crisis, house, housing, loan, mortgage by AJ with no comments yet.