Significance

• If your former home does not sell for enough money to pay off your mortgage loan, the amount you still owe is the mortgage's "deficiency." In many states, lenders can sue homeowners for mortgage deficiencies. Should the mortgage company be successful, it may use its court judgment to garnish your wages and bank accounts or attempt to seize other assets you own.
  
  

Benefits

• Bankruptcy protects you from lawsuits after foreclosure through its "automatic stay." After you file for bankruptcy, creditors cannot take any type of legal action against you or attempt to force you into paying your debt. This protects many former homeowners from the need to make payments on a mortgage deficiency after foreclosure.
  
  

Considerations

• Some states, such as California, are considered "nonrecourse" states. This means that mortgage lenders cannot sue consumers for deficiencies resulting from foreclosure. If you live in a nonrecourse state, filing for bankruptcy may still be beneficial to help you manage other forms of debt, but isn't necessary to protect you from a lawsuit related to your mortgage deficiency.