The Case for Walking Away

Interested in hearing feedback about Jane Bryant Quinn's article in Newsweek advocating not waiting too long before declaring bankruptcy.

http://www.newsweek.com/id/177749

A lot of it makes sense. As someone who had to choose bankruptcy 8 years ago, I agree that one should not wait until one is ready to slice one's wrist to do it. As my own BK attorney said, a BK should be as carefully planned as any other financial decision.

That said, I quibble with this:

Don't try to preserve your house if you're going broke. Stop making payments, stay there while foreclosure is underway, then move out and rent. If the mortgage is underwater, "you're already functionally renting because you have no equity," says Adam Levitin, a professor at Georgetown University Law Center. In theory, many states allow lenders to chase you for the sum still owed after the house is sold. But that's rare, Warren says. Lenders know that you probably can't pay.

Renters generally have to go through credit checks these days, so it would be foolish to let 30, 60, and 90-day late-pays pile up right when you want to make a financial move. Rent before the late-pays hit your credit report.

Also, I'd be surprised if it's "rare" for lenders to go after people who allow a home to be foreclosed upon. It's dreadfully easy to sell consumer debt to a collection agency, and ding your credit for it. It costs them very little to do that, and it's a common practice. Whether or not it's allowed for real estate is something I don't know, but I can't see why it wouldn't be allowed.