After surviving the difficult process of a foreclosure, a former homeowner may still face an additional obligation to their mortgage lender. Unmanageable by most, there is a way to clear this sizeable debt by filing bankruptcy.

When a home is sold through a foreclosure action, and sufficient funds are not collected from the sale, the lender can file for a deficiency judgment against the borrower to repay the balance of the debt. The lender, or their collection agency, can ultimately garnish wages and freeze personal bank accounts to collect the funds. The garnishment is often a surprise to the account holder and perpetuates the strain on the household budget.

An example would be if Mr. Smith originally purchased his home for $350,000, and today owes $300,000. Laid off from his job of ten years, Mr. Smith is forced to take a job that pays considerably less. He falls behind on payments, and the mortgage company will not work with him or offer any other options. His home is sold at foreclosure for today's market value of $250,000. The lender then obtains a deficiency judgment from the court against Mr. Smith for $50,000, which now becomes a new financial obligation.

The laws vary from state to state, but this judgment can often be obtained for no additional cost by combining it with the original foreclosure lawsuit. Lenders are taking advantage of the opportunity in states that allow this process, and are still filing in others if it proves cost effective.

Filing chapter 7 bankruptcy wipes out this additional debt completely, eliminating aggressive actions to collect and preventing the lender from further pursuit. Consumers can move forward, without the burden of past dues, and with a clear picture of their finances.

As stressful as this time in a person's life is, it is important to be proactive and consult a qualified bankruptcy attorney as soon as the need is determined. There are many options to explore, and the laws are always changing. Hiring an experienced attorney will ensure that the best individual choices are made. Current earnings, assets and debts are carefully examined along with future plans and goals. The best timing for filing for bankruptcy, whether it occurs before or after a possible foreclosure, can only be determined with the help an expert.

By enlisting the assistance of a bankruptcy attorney, consumers can do more than wipe out a deficiency judgment; if they are proactive and contact their attorneys prior to the judgment, they can also stop it before it happens, which will keep it from ever appearing on their credit report.