White, Brent T., Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis (December 7, 2009). Arizona Legal Studies Discussion Paper No 09-35. Available at SSRN: http://ssrn.com/abstract=1494467 .

Associate Professor White has published a fascinating and thorough paper that traces the history of mortgage lending, the failure of the mortgage industry and the causes of the current foreclosure crisis. He concludes, in part, that one major answer to this complex issue is to remove the emotional ties that a homeowner has with their home, and that a strategic abandonment of the home may be financially prudent.

As a debtors attorney, we have frequently counseled our clients that the decision to return collateral, especially a car, or now more frequently, a home, is the correct financial decision, where the payments are too high, or the collateral is worth significantly less than the amount owned. During those discussions, we have struggled with our clients to get past the emotional or moral ‘requirement’ to keep and pay for the collateral. Assoc. Professor White’s discussion paper is an excellent examination into the objective financial considerations, balanced against the ‘shame and fear’ of failing to keep ones home, and actively choosing not to pay.

It occurs to me that his paper could be expanded further to incorporate the ‘Shame, Fear and the Social Management’ of the choice to file bankruptcy. Certainly our clients suffer the same emotional struggles that are suggested when it comes to deciding whether it is ‘right’ to file a bankruptcy. Additionally, and typically, if a homeowner is considering such a difficult choice as to strategically abandon one’s home, that homeowner has other and substantial debt that will require consideration of filing for bankruptcy, to deal with the ‘big picture’, financially.

As always, any debtor who finds themselves in this kind of financial hardship, they should seek the counsel of a personal bankruptcy attorney, to understand their options, the risks, and the pros and cons of making this very hard emotional and financial decision.

John C. Colwell
Attorney, Debt Relief Legal Clinic
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