Would a massive, nationwide debt relief program jump-start the U.S. economy? Some economists say yes. New Jersey’s economy, like other state economies, is weighed down by high unemployment, high home foreclosure rates and depleted savings. The radical idea would have banks, investors and others participate in what would amount to an out-of-court settlement in which homeowners and others in need of debt relief would get real results. The cost would fall onto banks and investors, who would be forced to take write-downs (in the case of banks) or lose some profits (in the case of investors).
It is no secret that millions of U.S. citizens are buried in home mortgages they can no longer afford. Soaring credit card bills and other types of consumer credit have many people maxed out and overdrawn. Household debt remains at 90 percent of gross domestic product. Trillions of dollars in outstanding debt is one of the major reasons demand for goods is down. With lower demand, companies are hesitant to hire new workers, thus perpetuating the cycle. The program, if instituted, would essentially give many consumers a fresh start.
While the program may sound enticing to many of those in need of debt relief, its likelihood of becoming a reality is slim at best. Many members of both parties in both chambers of Congress are unlikely to support any type of widespread debt forgiveness program, due to the massive debt that the financial system would have to take on.
For now, many New Jersey residents may be better suited exploring their bankruptcy options as a means of getting that fresh start. When people find themselves drowning in debt, the stress may become overwhelming. Those needing to explore bankruptcy strategies may be best served by contacting an experienced attorney who can explain their options.
Source: Reuters, “Special Report: A ‘great haircut’ to kick-start growth,” Jennifer Ablan and Matthew Goldstein, Oct. 3, 2011