Bankruptcy can help you in the event of a deficiency judgement against you, for any amounts still remaining on a mortgage after your home was foreclosed. Like most other forms of debt, especially unsecured debt--and while the mortgage itself was secured, a deficiency judgment obtained after foreclosure is unsecured--deficiency judgments are dischargeable in bankruptcy. Filing bankruptcy will also temporarily stay, or halt, any collections efforts on the judgment. (See also Mortgage Deficiencies in Bankruptcy).
Discharge of Unsecured Debts in Bankruptcy
Bankruptcy allows debts to be discharged, or eliminated. First, the creditors are paid as much as the bankrupt debtor reasonably can pay--either through the liquidation of the debtor's assets (Chapter 7) or over time, under a court-ordered payment plan (Chapter 13). Then the remaining debts are discharged.
Certain debts are not taken care of so neatly in bankruptcy, though. First, there a few debts--taxes; student loans; child support; debts arising out of judgments for injuries caused while DUI--that, for public policy reasons, are not easily (if at all!) dischargeable in bankruptcy. These are debts that society or the government want people to pay no matter what.
Second, secured debts--which are debts which have property acting as collateral--cannot be simply discharged IF the debtor wants to retain the property. While the bankruptcy filing will give the debtor tools and leverage he can use to reduce these debts, fundamentally, he will need to keep paying if he wants to keep the property. However, if you don't want to keep the property, or if the property has already been foreclosed on, this is not an issue.
However, the vast bulk of unsecured debts are exactly the kind of debts which bankruptcy is designed to help debtors with.
Deficiency Judgments and Bankruptcy
A debt arising from a court judgment is an unsecured debt. As long as it's not one of those few, privileged debts which cannot be easily discharged in bankruptcy--like a debt resulting from a judgment in a lawsuit for DUI--it is dischargable. The vast majority of judgment debts will simply be "regular" unsecured debts, and that includes deficiency judgments. So if a lender has a deficiency judgment against you, because foreclosed property was not worth enough to satisfy the mortgage or other secured loan, you can discharge that debt in bankruptcy.
How an Attorney Can Help
A lawyer can advise you as to when bankruptcy is your best option, and which kind of bankruptcy to file. The attorney can also help you complete the filing quickly and accurately, so you can gain bankruptcy's protection.
