Can anyone tell me where I go wrong?
I thought that the bankruptcy bill has eliminated that, but it's still valid in a number of places apparently - either because it's usual practice (but this may be a time to create new precedents) or because it's actually mandated by law (in California for instance, IIRC) In the long run, we're all dead. John Maynard Keynes
In the US (if I've understood correctly) anyone with a 100% mortgage and rapidly falling house prices (potential negative equity) simply sends back the keys and the debt is cleared. Don't fight forces, use them R. Buckminster Fuller.
So the lenders who never should have lent to people who never really could afford to buy take their lumps, without destroying the fabric of the neighborhood. And it seems like if the house value continue to slump, the "fair rental value" could drop with it, putting the prior owner of the house in a position to save up a down-payment toward getting into the market for a house they can afford. Utsukushikereba sore de ii
If the house is durably worth less than the outstanding debt, sending back the keys and foreclosing is the rational thing to do. There are a couple of legal and tax bobby traps to avoid, though. There are also issues related to junior mortgages and home equity loans that can make things pretty entertaining (from a bystander POV, I mean - no fun at all for home owners).
Actually, there are now businesses dedicated to doing all the paper work for defaulting owners.
Example : http://www.youwalkaway.com/
Pretty funny Facts, selfish little bastards. They don't even care about your feelings.
Most of the time doing that is far more trouble than it's worth, but if a Trustee does, he would then - after his (horrendous) costs - divvy up the resulting pot pro rata to creditors, including the Bank's £50,000.
Equally, most of the time the Trustee lets people keep virtually everything they have (apart from good jewellery, plasma screen tv's maybe) because:
(a) there are statutory exemptions eg bed and bedding, tools of trade;
(b) it is simply more trouble than its worth to flog most stuff off.
And once you are "discharged", then that's it: the bank has no further claim.
Bankruptcy was actually pretty painless in the UK even back in my days (1977 to 1983) as a DTI "Examiner in Insolvency" working for the Official Receiver in Nottingham.
That job was quite an experience.
AFAIK bankruptcy is even less painful now, and (unless you have been a naughty boy) you get an automatic discharge after a year. Mind you, your credit's fucked for the next few years, but then it would have been anyway.
