Many people that consider bankruptcy believe that when they file bankruptcy their home will go into foreclosure. If you’re not going to reaffirm your mortgage then yes it can go into foreclosure for non-payment. If you reaffirm your mortgage, you may continue your payments as usual. However, aside from reaffirmation or foreclosure you also have the choice to surrender your home. By surrendering your home, you are giving it back to the lender. In contrast, when you foreclose on your home, it is essentially being taken away from you.
If your home is in foreclosure, and you decide to file bankruptcy, the foreclosure proceedings will be held off by the automatic stay provided to you by the bankruptcy code. Shortly after your discharge, however, the foreclosure proceedings will then continue as normal. If you choose to surrender your home in your bankruptcy, you may do so regardless of foreclosure proceedings being started.
Many people may wonder what difference it makes whether their home is given back or taken away. In the event a home is surrendered in bankruptcy, it will still go through foreclosure. This is done to clear the homeowners name from the deed. However, when homes are not surrendered and foreclosed on, the homeowner may still be on the hook for any amount due to the lender after the auction. If the home sells for a price that satisfies the loan, then the homeowner may not owe anything. However, if it is sold short of its loan, the homeowner will be required to pay the difference. When a home is simply surrendered to the lender, the homeowners are essentially turning in their keys. This keeps the homeowner safe from the lender demanding payment on the home.
If you are considering bankruptcy, foreclosure, or surrender, speaking to an attorney can help you stay informed of the differences and how they may impact what you owe.