You’re quite simply wrong.
First, In all states, a person who simply walks away from a mortgage will have a tax liability with the IRS for getting out from under the debt without going through BK. So there ain’t a free lunch out of this. If you walk away from a $500K mortgage on which you had nothing down and you hand in the keys on a house now worth $250K, and the bank lets you, guess what? You have a $$250K income event which you must report to the IRS.
Here are the non-recourse states: Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, Washington. There are other states where a creditor can bring only one legal action against a debtor - ie, they’d better get it correct on the first crack.
In California, only the first loan to purchase a home is non-recourse, seconds and HELOCs can come after you for deficiency.
Now, as to bankruptcy, which you have egregiously incorrect:
There are multiple forms of bankruptcy. In the US code, there are four chapters that are applicable to individuals, not only businesses.
OK, one is a hybrid - Chapter 12 - for farmers and fishermen. Let’s put that aside.
Chapter 7 is a declaration of insolvency. Your assets are liquidated, and the court distributes the results to your creditors, who have to take what they can get. You are flat busted broke, but get your debts discharged (aside from student debt) and you get to start over.
Chapter 13 is used to get your debts restructured. Your creditors might have to reduce what you owe, or they have to get it back over a longer period of time. You do NOT get to walk away from everything.
Chapter 15 is a new chapter of the US BK code, and is designed to deal with debtors who had money loaned to them from within and *outside* the US, where there are claims of debt across international boundaries. That’s probably not going to come into play for most homeowners.
“First, In all states, a person who simply walks away from a mortgage will have a tax liability with the IRS for getting out from under the debt without going through BK.”
As far as I know that applies in most all forms of debt other than “non recourse” mortgages. There was even a provision added to the laws in 2007 to allow up to $1mil (single) - $2mil (married) of debt forgiveness as tax exempt, on mortgages that are not covered by the “non-recourse” condition, in which they are exempt anyway. That rule was set to expire in 2012 but most likely will not.
http://www.irs.gov/newsroom/article/0,,id=174034,00.html
However, I see by the list:
http://www.forecloseddreams.com/recourse_states
the number of “recourse” states has grown.
“Now, as to bankruptcy, which you have egregiously incorrect:”
The question was not whether or not there were different types of bankruptcy filings that were possible (I simply listed a few of the ways a business/business owners debts could be discharged when a business went bankrupt.
The question was whether or not the owners of a failed enterprise were less moral than someone who walks away from their home mortgage.
I do not think their moral fiber is less than someone who walks away from a non-recourse mortgage.
And, the IRS question is a separate question. The IRS might get something extra from someone who obtains debt cancellation of a mortgage that is not a non-recourse mortgage - but the mortgage holder does not. And the moral obligation is NOT to the IRS, it’s to whom lent the money to the home buyer.
Nowadays, Chapter 11 isn't really that different from Chapter 13, so no biggie (it used to be an advantage to use Chapter 11, actually).
The 2005 amendments really closed Chapter 7 to most people because of the means test, and pushed everyone into Chapter 11 or 13, because then they could push the plan, which because of the 2005 amendments, gave unsecured creditors better protection, and, as time has shown, gave secured creditors much less (they get subject to the cramdown on a lot of things).
But anyway, enough for now. :P