Walking away from your debt

My initial reaction to writing this article was simply ‘don’t go there’. Part of me didn’t even want to entertain the idea but another part of me wanted to give you a chance to decide for yourself. The goal of this website is to provide information and motivation to get you moving on repaying your debt. To discuss walking away from your debt is to go against almost everything that I have written on this website – however recently I have had something of an epiphany.

Before I go on I want to point out here that the main focus here is walking away from your mortgage not credit card debt or unsecured loans.

Yesterday I read an article on the BBC website called ‘America’s house price time bomb’. At first I thought it was going to be the usual parade of facts and figures about the number of homes foreclosed that we are all too familiar with. Up to a point that was the case but then the article talks about a woman who bought an apartment in California in May 2006.

The woman bought the apartment in May 2006 for $500,000. This year her apartment is now worth $300,000. She still owed $500,000 on the mortgage. She had negative equity of $200,000. The interest rate on her mortgage had recently increased. The interesting thing was that she was a well paid professional who could easily have afforded to make the new higher repayments. Instead she simply decided to walk away from her mortgage. By her estimates it will take about five years for her credit record to get back to where it was before she walked away.

The way she justified it was that it didn’t make financial sense for her to continue paying a $500,000 mortgage on a house worth only $300,000. She asked the question “Is the bank going to pay for my retirement because I was a good girl and paid my mortgage”.

I did some further research about walking away from your debts and I came across another article on CNN.

The thing that really interested me about this article was the comments section – when is it okay to walk away? The comments that were posted represented all sides. Those who favoured walking away as a possible solution to debt and those who were against it – it is well worth reading the comments to get a feel for the general opinions on the subject.

I reckon that the biggest thing that prevents people from walking away from their mortgages is the social stigma associated with it. People don’t want to be seen as a quitter. However according to the BBC article there seems to be a change in this attitude. There is growing acceptance of the fact that the housing market is on a serious downward trend and that it’ll likely be years before it recovers. The pervasive attitude now seems to be that people should do what is best for their financial interests.

As the need evolves so do websites to cater for that need – one such website is youwalkaway.com. I’m not in anyway recommending this website I am just letting you know of its existence.

So now for the hard part – where do I stand on the issue?

Almost every time that I write an article on debt and repaying debt I make some reference to personal responsibility. We are all responsible for our own individual actions. What this means is that if we have a debt problem then it is up to us to solve that problem whatever way we can.

I don’t know you personally and I don’t know your financial and personal situation but if you are reading this the chances are your financial situation is not good. If walking away from your mortgage is your way of taking responsibility for your debts then so be it. It should however be the option of absolute last resort. You have to give repaying your debts your best shot. In years to come you don’t want to be looking back and regret not trying harder to save your home.

Fortunately I’m not currently faced with a debt situation as emotionally hard as foreclosure so perhaps I’m not the best person to be asking for his opinion on the subject. I’m sure I would be singing a different tune if I was faced with foreclosure. I’ll admit that prior to doing research on the subject I would have been in the ‘don’t walk away camp’ but I’m now of the opinion that some people may have no other choice and it is in their best interest to walk away. I’m sure it’s not a decision they take lightly. To those who are judging the walkers I say try walking in their shoes for a while before you make any judgements.

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