It is possible to file for bankruptcy due to debt from mobile home repossession. A mobile home is a secured debt, with the mobile home itself serving as collateral for the loan. The lender has the right to repossess the mobile home if you stop making payments. However, the problems often don't end there. The lender will sell the mobile home at auction or through a private sale and hold you responsible for the balance if the mobile home sells for less than the balance on the loan.
Deficiency Judgment
The lender may pursue a court action called a "deficiency judgment" if a balance remains after the sale of the mobile home. The process requires filing of a civil lawsuit, which the lender is virtually guaranteed to win in court. After hearing the case the judge will issue a deficiency judgment requiring you to pay a specific amount of money to the lender. With the collateral for the loan stripped away the remaining balance becomes an unsecured debt --- the same as a credit card balance.
Garnishment
If you fail to pay the judgment the lender may seek garnishment of your bank account or wages. Bank account garnishment freezes your account while the lender or debt collector withdraws money to satisfy the judgment. Wage garnishment forces your employer to send a percentage of your paycheck to the lender each payday. Usually lenders or debt collectors are open to payment plans or a settlement of the deficiency judgment. Garnishment is the next step if you fail to work out payment arrangements.
The Automatic Stay
People facing judgments and garnishment often file for bankruptcy as a result. A provision in bankruptcy called "the automatic stay" provides immediate relief from all debt collection, including garnishment. The judge signs the order upon receipt of your bankruptcy application, and that immediately enacts the stay.
Bankruptcy Types
Chapter 7 bankruptcy is the simplest form of bankruptcy and eliminates deficiency judgments and other unsecured debts in about three or four months. Generally, only people with low incomes are eligible for Chapter 7 due to income restrictions that vary by the state. Chapter 13 bankruptcy, which is also an individual form of bankruptcy, is open to all debtors regardless of income. The disadvantage to Chapter 13 is that it is not a quick process. Chapter 13 participants must complete a payment plan lasting three to five years. During the period they may pay all of their unsecured debt, a percentage, or nothing at all depending on their income and the bankruptcy agreement.
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