Another sign

Consider the true story of a young man, single, mid-30's, with a good paying job.   He was promoted a few years back with much better salary, so he joined the housing craze, and bought a nice place on 100% financing.  He's survived several rounds of layoffs, but knows the axe could fall at anytime.

Back in early December he learned the value of his home had fallen over 60%.  Like so many others, he owes more on the home than it was worth - way more.   He thought about it - thought about if it made sense to continue to pay that huge mortgage, mostly interest payments on such a young mortgage, knowing he'll eventually pay way more than he could ever get out of the house.

He got a lawyer, carefully planned it out and declared bankruptcy.   Told the bank - you can have the house.  Lives comfortably in a rented apartment now.   Only bump in the road for him is a few years without credit cards - and issues with buying stuff online (at online discount) without a credit card.  That problem is solved by tapping friends with credit cards to help him out, and paying them back in cash.  It's hard to do alot of things "cash," but with friends he can get by.

Here's the thing - it was a very smart financial move for him to declare bankruptcy and he - typical of his generation - as a rule - doesn't worry about the stigma that used to be attached to being bankrupt.   Actually, he looks good for protecting himself.   He figures it's no big deal, he's young, to go without credit cards for a few years.  In fact, no credit cards will be a big help in limiting his spending.  But like a basic law of physics (every action results in an equal and opposite reaction) - as more people do what's "smart" for them, what will be the longer term consequences?  

How many people will have no credit rating for five or more years due to bankruptcy?  Will that stop them from consuming?  Will it affect how credit ratings are figured?  Will anyone care about credit ratings for the next five years, and beyond?  What will happen when those of us from a different generation that keep paying our mortgage because we see it as our responsibility to fulfill no matter what, ends up with homes we've paid dearly for?  How many others have - or will - make this same decision to declare bankruptcy?  Couldn't those numbers be staggering, and dramatically effect/delay a turn-around in our economy?  Will bankruptcy rules be changed?  Do they need to be changed?

Food for thought.