Bankruptcy and Foreclosure

Under both Federal and Arizona laws, bankruptcy and foreclosure are separate legal actions. Filing for bankruptcy in AZ does not mean that you will face foreclosure, and likewise, being foreclosed in AZ does not mean you must file for bankruptcy. It is possible to keep your home in the Chapter 7 bankruptcy, Chapter 11 bankruptcy, and Chapter 13 bankruptcy process in Arizona.

Bankruptcy and foreclosure are often linked together because the hardships that cause them are similar: unemployment or under employment, medical bills, death of a spouse, rising cost of living, failed business, and a countless number of similar situations. Some examples of how bankruptcy and foreclosure might be linked:

  • If medical bills or death of a spouse depletes savings and reduces income, then spending cuts will have to be made that may or may not include the mortgage payment.
  • If a mortgage is underwater and you choose to default – stop paying – monthly mortgage payments that results in foreclosure, then it is possible that a bankruptcy filing could be necessary to handle the deficiencies, fees, penalties and taxes that might be charged on the original mortgage loan.
  • If unemployment or failed business causes bills to be unpaid and credit card balances to soar, then it might make sense to file for bankruptcy on the outstanding debt but still reaffirm the mortgage and keep the home.

Bankruptcy and foreclosure do not have to be undertaken at the same time in Arizona or any other state. If your mortgage payments are current and are manageable in your budget, you can file for bankruptcy on the other outstanding debts and still keep your home. Every mortgage situation is different, and it is best to consult with a knowledgeable bankruptcy lawyer to determine which chapter of bankruptcy filing will result in the best outcome for you.