A paper written by David Bernstein, an economist at the U.S. Treasury, argues that credit card debt can play a part in families losing their homes and that this debt is deepening the mortgage crisis. He posted this paper as a private citizen, but utilized information from the Survey of Consumer Finance. Credit card debt, mortgage foreclosures, and access to bankruptcy are linked.
He studied families whose mortgage payments take more than 40% of their income. Within this group, it is 21 times more likely that they will default on their mortgage payments than people who utilize less than 40% of their income to pay for their mortgage. But, if these families eliminated their credit card debt, about 1.5 million households could bring their mortgage payments down below that 40% range and increase their chances significantly in keeping their homes.
He also noted that in order to save their homes, more homeowners should consider bankruptcy. Even if you can’t redo your mortgage, if they were to write off enough of their other debt, they would be able to make their payments. Bankruptcy offers many more options than people realize and often is significant in helping families to receive a modification to their mortgage.