Cannot Pay Mortgage-Bankruptcy vs. Foreclosure

Q: What are the consequences if you walk away from your mortgage payment. Would you need to file bankruptcy first?After 10 months my sister is receiving no child support, though she was awarded a sum of money, since her estranged husband doesn’t work. She can’t afford her home and daycare for 2 young boys, along with the rest of her bills. She was considering filing bankruptcy or just not paying her mortgage. What are the differences between these two options.

A: If she fails to pay the mortgage, it may take 6-9 months or even more for the bank to foreclose. They will just take the home back. Sometimes, they will pursue a deficiency judgment against her. This is the balance of what was owed on the mortgage and what they eventually sell the house for at foreclosure. If the bank is owed, they can, and sometimes do, sue the person on the mortgage for that deficiency balance. Sometimes I have negotiated with banks to not pursue the deficiency, and just take the home back and be done with it, in exchange for the mortgage holder’s cooperation in signing all documents and surrendering the keys. This helps the bank in that they don’t have to sue the mortgage holder, post the house with the sheriff, etc. Bankruptcy may present a better option, depending on the circumstances as the bankruptcy stay can give additional time in the home and other debts the person is having difficulty paying, can be addressed through consolidation or discharge.