Bankruptcy can Save Your Home
Bankruptcy and Foreclosure Information
A workout is not always possible--some homeowners (including those with small businesses) who are behind in their mortgage payments and deeply in debt need to consider bankruptcy. Bankruptcy cannot discharge secured debt to your lender, but it can provide time for you to reorganize your finances.
The loan on your house is secured by the house. When you get a mortgage you take on a personal obligation to pay back the mortgage. The bank gets your promise in the form of a note, and it gets a lien on your house. If you cannot meet that obligation, the lender can go after the house.
Bankruptcy can wipe out your personal obligation, but not the right of the bank (through its lien) to ultimately foreclose for you aren't making required payments. If a foreclosure auction does not bring enough money to pay off the mortgage, there is a deficiency .
In many cases, this deficiency can be wiped out in Bankruptcy. As you may suspect, this general rule is subject to all kinds of caveats and exceptions.
Chapter 7 and Chapter 13 of the Bankruptcy Code stop foreclosure (at least for awhile) and protect other assets. The moment that you file a bankruptcy petition with the federal bankruptcy court all debt collection activity is stopped (stayed). The automatic stay prevents your lender from moving forward with foreclosure. It cannot contact you regarding any missed payments nor discuss with you any workout arrangements.
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