You may not need to file for bankruptcy if you’re facing a mortgage foreclosure.
Sometimes debts can take care of themselves. In many states, the mortgage company can’t sue you for the difference between your mortgage and the value of the property. This is called the deficiency. So if you can’t get sued for the deficiency, mortgage foreclosure alone won’t force you into bankruptcy. For example in Wisconsin, a mortgage company can’t sue for a deficiency on your home mortgage unless it waits 12 months. In Arizona lenders can’t sue for a deficiency judgment in non-judicial foreclosures of residential property on less than 2.5 acres – almost all foreclosures fall within these limits. California has the “single action rule” which almost always saves the homeowner from deficiency claims.
I’ve met many debtors who are generally in pretty good financial shape except for their mortgage. In fact, if they can walk away from their mortgage, they may be able to avoid bankruptcy altogether. Since you can get discharged from your debts only once every 8 years in chapter 7, it’s important to use this remedy cautiously.
If you have a bit of cash, and just a few debts, you might be better off settling your credit card debts. It is possible to do this – sometimes at a considerable discount. Debt settlement plans are not for everyone. And there are many bogus debt-settlement agencies you have to watch out for.
Bottom Line
If you are facing foreclosure, bankruptcy is not always necessary. If you aren’t facing a deficiency judgment, consider your alternatives to bankruptcy before filing.
About David Leibowitz, Illinois and Wisconsin Bankruptcy Attorney
David Leibowitz holds a B. A. in Economics from Northwestern University and received his J.D., cum laude, from Loyola University of Chicago School of Law where he also served as Note Editor of the law review. Admitted to the Illinois and Wisconsin bars, he is the managing member of Lakelaw, an interstate law firm with offices in Chicago, Skokie and Waukegan in Illinois and Kenosha, Wisconsin. He is nationally recognized for his work in identifying and pursuing mortgage related claims in the context of bankruptcy. David is a member of both the Illinois and Wisconsin bars and has practiced in bankruptcy courts throughout the country. He is a member of the American Bankruptcy Institute where he is the Co-Chair of the Commercial Fraud Committee. He is ta frequent contributor to the ABI Journal and speaker at ABI events. He is an author and editor in chief of the American Bankruptcy Institute Fraud Manual published in 2010. He is also a member and Director of the National Association of Bankruptcy Trustees, a member and frequent speaker for the National Association of Consumer Bankruptcy Attorneys and numerous state and local bar associations. He is Board Certified by the American Board of Certification in both Consumer Bankruptcy Law and Business Bankruptcy Law. David is also the publisher of Lakeblawg, www.lakelaw.com/lakeblawg, a blog dedicated to consumer and small business bankruptcy and mortgage foreclosure defense.
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