Tuesday, November 29, 2011

So why don't people file Chapter 11? - UPDATED

So American Airlines has filed Chapter 11, which allows them to stop funding pensions (which they agreed to), cancel routes and gate fees (which they signed up of their own fee will) and renegotiate contracts they signed, without any penalties.
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Good for them, I suppose.  The alternate might be to go under or to reduce shareholder value.
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But, given this situation, why can't underwater mortgage holders file chapter 11, and reset the mortgage balance to current value of the home?
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This isn't some "hypothetical" problem.  As long as mortgage holders are underwater (and it is thought up to 25% of them are), we haven't solved the housing problem.  House prices will continue to go down over time, which makes buying a new house a sucker's game.  And threatens anyone that has a home.
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The mortgage problem also exacerbates the employment problem, since Americans underwater on their mortgage can't  relocate to areas where employment is available (a traditionally American way to handle unemployment).  Solving the underwater issue this way allows us to resolve multiple problems.
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If corporate America can do this to remain competitive, why can't average america do this to remain competitive?  I mean besides the reason the banks (who we bailed out on the order of $870,000,000,000.00) might lose a little money.  After all, those banks overestimated the price of the home too.  In face, they were suppose to be the "experts" on value.  Didn't everyone have to get a price estimate before we got a loan?
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Updated 11/30/2011
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Eddie told me that people CAN file Chapter 11, but banks don't work to reduce principal for the peons.