Foreclosure investors state that ~75% of all properties scheduled for auction never see the courthouse steps. Some feel bankruptcy is better than foreclosure, believing the ~6 months of delays before eviction outweigh the ~$2,000 in attorney fees they’ll pay. In other cases, the bankruptcy gives homeowners the opportunity to wipe out some unsecured debt and get back on their feet. But sooner or later the property will end up at auction.
Be assured that the lien/mortgage, when attached to the property, is perfectly safe and cannot be wiped out in a bankruptcy. However, a bankruptcy judge can require secured creditors (i.e. holders of a property lien) to accept less than full value for payoff of the secured debts (i.e. a ‘cram down’). When the debtor declares bankruptcy, all collection efforts must stop, and one must immediately contact the bankruptcy attorney to determine what type of bankruptcy was declared and when the attorney expects the debtor to come out of bankruptcy. From here, one can either wait and see what the bankruptcy court will pay for the lien, or wait until the property comes out of bankruptcy and collect the judgment after.
NOTE: Chapter 7 (liquidation) bankruptcy forces the debtor’s property to be sold at auction to pay off creditors. If the real estate has enough equity, the proceeds from the sale of the property should be enough to satisfy the debt on the property and the lien judgment. If the judgment debtor’s real estate appears to have sufficient equity, one should contact the foreclosing attorney to determine what needs to be done next to collect the owed funds after the auction.
NOTE: Chapter 13 (wage earner reorganization) can be filed as often as the debtor likes. If the lien judgment is less than $5,000, the odds of the debtor filing bankruptcy is greatly reduced. The attorney fees will often be higher, and it is therefore cheaper for the debtor to pay off the judgment.