The bankruptcy-foreclosure myth

This blog post will expand on an "Ask Howard" question Wednesday morning -- whether you can keep your home in bankruptcy. The answer is, not necessarily. It's a myth that the primary residence in off-limits to creditors. Bankruptcy is complicated. There are several forms of it for individuals -- Chapter 7 liquidation, Chapter 13 restructuring of all debts, and even Chapter 11, like companies use, in some cases. The rules for each are different. But one general principle is that bankruptcy puts all debts on hold TEMPORARILY but sooner or later you have to face your debts, either paying them off in full or making other arrangements with creditors that would have to abide by instead. A company can always go out of business altogether, or threaten to, but an individual expects to go on living, and that kind of changes the expectations of creditors. Not only is it a myth that your residence is automatically off-limits to creditors in a bankruptcy, but a mortgage creditor in some cases has more power to collect than some other creditors do. This could change, however. Over the anguished protests of the mortgage industry, the House Judiciary Committee is recommending that Congress empower bankruptcy judges to order changes to the terms of mortgages.