When you file for bankruptcy, an “automatic stay” goes into effect. What this does is, it prevents your creditors from moving ahead with any collection efforts — for the moment at least. In order for a creditor to get around this “stay,” they would have to petition the bankruptcy court to lift it.

How You Can Still Lose Your Home Even If You File for Bankruptcy Consider this: Let’s say your house is about to be sold the courthouse steps. So, you file bankruptcy to prevent this from happening.
Your mortgage holder will petition the court to lift the stay. And, they are likely to get it lifted if you can’t pay the arrears, you don’t have any equity in the house and your finances bear out the fact that you really can’t afford the monthly payments. The reason is, creditors have a right to sell any of your assets in order to collect a debt you owe them. And in this case, the asset happens to be your home.

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short sale in real estate is caused when a home-owner owes more than the value of the property. In order to better understand a short sale, an example would help. For example, lets say a home-owner owes $450,000 on the value of the property and the home is worth $300,000. If the owner were to sale the home, he would technically owe $150,000 on the property. Since the current owner falls short of money when he sells the property, the bank/lender can negotiate on the price of the home. The lender decides to take a value less than the value owed on the property and this avoids foreclosure.

In order to avoid a short sale, a new program for reducing the principal balance on the current home loan is available. With this program, the home-owner will get positive equity back in the property, avoid the short sale and still keep the home. In the above example, the owner will get a new loan for 90% of the current market value of the home or $270,000.

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