Younger Borrowers Make Up Majority of Underwater Homeowners

This spring's rising home values helped some homeowners emerge from their underwater mortgages.

Unfortunately, they didn't do much good for younger borrowers.

While significantly fewer people now owe more on their mortgages than their homes are worth, a disproportionately large percentage of homeowners who are still underwater are under the age of 40, according to Zillow.

CNN reports that 48 percent of homeowners under 40 have negative home equity. That's double the rate of older borrowers.

Not only is this bad news for homeowners in their 20s and 30s - it's bad news for everyone.

Many of these younger homeowners are in their first homes. Because underwater borrowers are often unable to sell, they could stall the recovery of the real estate market - and the overall economy - for years.

Additionally, a growing number of young underwater homeowners are being pushed into short sales, in which the lender forgives the gap between the amount a home sells for and the amount the borrower owes on the mortgage.

But short sales come at a cost. In some states, homeowners are still liable for the difference in value. Often times, the forgiven debt is considered income by the IRS - and is thus subject to taxation.

In any situation, a short sale does just as much damage to credit as a foreclosure or filing for bankruptcy. But unlike bankruptcy, losing your home does nothing to help improve your finances.

Filing for bankruptcy may hurt credit initially, but - for many consumers - it's the only solution that will actually allow a credit score to bounce back.

For underwater homeowners, Chapter 13 bankruptcy has the ability to stop foreclosure, reorganize payments, and relieve debt. With the pressure of overwhelming debt released, your expenses - including that mortgage payment - will feel a lot less painful.

Being underwater is only a problem when you have to sell. The right bankruptcy plan can help keep you in your house long enough to recover value - and put you in a better financial position when the time is right to buy your next home.