What happens to debt and mortgages after an Economic Collapse?

Question for Fernando: What happens to personal debts in an economic collapse? How do people make monthly payments on debts when the economy implodes?

Thanks,

Janae

You basically still have to pay. If you owe 1000 USD and the dollar devaluates you still have to pay 1000 USD. If the dollar collapses and a week later those 1000 USD are worthless or at least worth less, then you pay back in that worthless money and there’s a chance you may have benefited from the event by paying back for whatever you got with your money in currency that is now worth less, while the property, goods or capital you bought or invested it retains its value much better. Then again, laws may be passed so as to avoid further economic damage by which your debt is adjusted to inflation. This will be very much contract specific but as we all know laws are written with one hand and changed with the other. In any case, chances are that if you buy property, cars or other durable goods with that money and some time later the economy collapses, you probably benefit from it as long as you’re able to keep making the payments and the inflation adjustment (if there is one) isnt too bad.

Tent town in USA

In the case of Argentina people that where just about to pay a debt in dollars, and just the day before they did, the economy crashed, and a few weeks later they just had to pay ¼ of what they had borrowed if the dollar debt was “pesified”, turned to pesos which at the time was 4 pesos =1 USD. They would have paid 1dollar to 1 peso before the devaluation.

Same happened to others but the other way around.

They paid for the debt and a few weeks later realized that if they had waited they would have saved ¾ of their money.

People that got into debt in dollars for a house, machinery, they were lucky because since the problem was so big most debts were pesified, meaning they paid back at a 1 dollar =1.4 pesos rate or so if they had the debt in dollars, or simply paid back in pesos if the debt was contracted in pesos. Having debt in devaluated pesos was of course the most beneficial scenario given that their debt was suddenly reduced to 25% of the original amount.

Of course you no longer got paid in a currency that was 1 to1 with the USD, but yes, it was a sweet deal for some.

latin america urbanisation

Favela in Brazil

You would make the payments as you normaly would. Although it was very hard to get cash debit payments and bank transfers were still possible and you could still make your card payments, even if credit card payments where not accepted any more in most stores. Of course this was all complicated due to the halt in the financial and business world, with the lack of cash due to the ATM extraction limits complicating things further.

Mortgages

Regarding mortgages in Argentina, certain laws were implemented to stop people from losing their homes, but it just worked in a smaller percentages of the cases.

A law was passed, Ley 25.798, which gave you a year before you had to continue making your mortgage payments. The mortgage was updated to the current price of the property and monthly payments could not be greater than 25% of the family’s income. This only benefited those that had bought the property between January 2001 and September 2003, the property had to cost less than 100.000 USD or the equal amount converted to pesos and it had to be your only property, the one you live in. This of course meant that the law only benefited the lower income buyer, and only those that bought during that period of time. As for those not covered by this law, a thousand homes went under the hammer per month.

Here’s the link explaining all this but its in Spanish:

http://www.contactoprofesional.com/abogados/hipotecas.htm

What happens if you cant make the payments? Accounts get frozen, and any money coming into your account is immediately taken to pay for those debts. You lose everything little by little and become poor or even fall below the poverty bracket into extreme poverty and indigence, losing it all and becoming homeless. That happened to hundreds of thousands. I know of several people that had to move back with their parents, other relatives of friends to live in their kitchens or living rooms for long periods of time, and those are the lucky ones. Those that didn’t have family to take them in, they ended up living on the streets.

 

What does all this mean?

 

Lets suppose for a minute that the United States collapses economically. If it does, then its not hard to see similar measures being taken: Maybe some of the poorest people that have debt may be able to benefit from some emergency law that buys them a bit more time, although it may be of little or no help in the end. The financial help or other extraordinary measures or laws passed to help the middle class would be even less. Ultimately you’re looking at the poor and middle class taking most of the financial damage, with a large chunk of the American society falling a few more steps of the social ladder into even deeper poverty.

 

FerFAL


Comments

What happens to debt and mortgages after an Economic Collapse? — 22 Comments

  1. This is helpful information. Thank you. My question is this: If payments are made, does the government take possession of the house/property? I am a retired California principal. My income is now fixed on the teacher’s state retirement system. If things collapse, I assuming that a collapse would also impact retirement systems also; therefore, there would be no income, no ability to make payments, and thereby lose our house.

    We have the means now to pay off the mortgage although there would be a huge income tax resulting from the withdrawal. I am wondering if it is best to be debt free when a financial crisis occurs.

    • It’s the bank the one that takes away your home if oyu fail to keep up with the payments. Sometimes debt can be helpful for the individual, but its a slippery slope and in general it is of course much better to stay as far from debt as you can.
      Fer

      • I would certainly pay the mortgage off NOW with money you can access NOW (even with taxes and/or a penalty applied) because if/when the collapse happens, that money will disappear (it’s only a number on a piece of paper right now). at least you would have a place for your family (and likely other family members) to live without the constant fear of losing it to a bank.

    • When the $collapses the banks and the government will have their hands full with bank runs , mortgage defaults, and mayhem in the streets… When food stamps no longer are available, and social security implodes we will have nothing to compare this event to as it had never happened before to this degree. I recommend you get some food put away soon and purchase a shotgun and ammo.
      Silver coins would be good as well

  2. This is the first time I have seen real information regarding the upcoming collapse and I have a couple questions. First, let me say that your information is I think, excellent, right to the chase. That said how much actual money should I keep on hand and what % should be in junk silver coins which is the only silver I would consider because if silver goes to $1400.00 an ounce (which I have seen predicted) dimes and quarters should certainly take care of most bartering. Gold would be out of the question

  3. If you have a floating line of credit with a local (only one location, no branches) small town bank and you have no other debt, how much would you recommend as a borrowing limit if your house is used as collateral? Note the house is paid off. I am thinking of making use of the LoC to buy things I would need in a collapse situation. Our home is very rural and has 20 acres with access to nearly 100 more between family who live on land all adjoining. I don’t want to lose my home and land but if this loan bank went belly up, could I if I can’t pay off the loan? Again, my main question, what would be a good limit to insure I don’t over extend? (for what it’s worth, we make 142K)

    • If youre making 142k and have your home paid for why go into debt? One of the nicest things to have during a collapse is NO DBET, get that first.:) Then save up and stock up little by little.

  4. There are millions of older people that live on Social Security and would have no income .What would happen to them?? Thousands would be homeless and starving and sick . Are they to live in the Fema camps .What about the nursing homes ?

    • This is scary,fuck up,only poor people hurth in this world,i dont belevie in nation,poor and rich,than,let is get our right from rich people,payback time,how about to kids baby,God that is a nightmare,i dont wantto think about it,

  5. My question will be…if the Economy Collapse and for whatever reason our currency change (From US DOLLAR to EURO 4 example) do I need to pay for any debt I had with the US Currency??

    The way I see it I agree to pay, by contract, to pay that specific debt in US Dollar not on any other currency.

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  8. Be ready Be Prepared and Be a Ready to Make some money. Oppurtunity will be at next collapse !! 2020 could be big down year for the crisis

  9. For those of us that have ELOCs (Equity Lines of Credit) along with a relatively small mortgage, does it make sense to use the ELOCs to purchase hard assets (Real Estate, Gold, Silver) and food or not? It seems to me that buying hard assets with the ELOC funds is much better than only having the credit line in a diminishing currency but I am open to any suggestions.

    • Up to a point yes, but I’d be careful about takign up debt. Food bought in bulk makes sense though: you’re eating anyway, you dont have much of a choice there. Having it already in storage ahead of time and buying in bulk means you save money as well.

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  11. LIVE WITH A FRIEND OR RELATIVE
    As far as having equity in your house today, (Sept 2017) Take it out and buy food (MRE’s) and silver 1 oz coins. some of your friends or relatives will have their home paid off and if they have no food or silver to buy or barter with then you will be an asset to them.(try to think in realistic terms) You can also buy freeze dried food that last for 20 years. Remember to store water, toilet paper, medical supplies,and it will not hurt to have breathing masks, goggles, wood for wood burning fire place.

  12. Remember stories father used to talk about the “Great Depression Days”,stated once that bank made agreement that family could stay in house as long as they kept it maintained and promised to resume mortgage commitment when economy in proved to allow….

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