Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Facing foreclosure or bankruptcy

Dear Dr. Don,
If our home goes into foreclosure, will our wages be garnished?
Ginger Garnishee

Dear Ginger,
It depends on the laws in your state. In some states, the lender can win a deficiency judgment for the amount owed, and your wages can be garnished to force repayment of that judgment. In other states, the lender isn't allowed to pursue this option. This Web site shows foreclosure procedures by state.

Even if your state allows the lender to file a deficiency judgment, the law protects part of your wages from garnishment. For more on wage garnishment see the Department of Labor's Web site. The site also reports that if a state wage garnishment law differs from the Consumer Credit Protection Act, the law resulting in the smaller garnishment must be observed.

If your house isn't in foreclosure yet, you may be able to negotiate with your lender to avoid foreclosure. Even if the lender has started the foreclosure process, you can delay the foreclosure by filing for bankruptcy. This Bankrate feature explains how you can work with your lender, while another feature explains how to avoid foreclosure.

Rather than worry about wage garnishment, concentrate on making a good decision about what you should do about your mortgage loan. There are alternatives to foreclosure and you should explore these options in light of your financial situation prior to giving up on the property, letting the lender foreclose and then worrying about where you're going to live and what you're going to live on. Talk to a U.S. Department of Housing and Urban Development counselor in your area for more information about your options.

Dr. Don,
How do I file for bankruptcy ... and is it too late to save my house that's already been transferred to foreclosure?
Forgo Foreclosure

Dear Forgo,
Individuals typically file for either a Chapter 7 bankruptcy (liquidation) or a Chapter 13 bankruptcy (reorganization).

Filing for bankruptcy can delay or interrupt the foreclosure process, while the bankruptcy court works on your case. In most states, you'll have more luck holding on to your home by filing a Chapter 13 bankruptcy because in a Chapter 13 filing you are working with the court to structure a plan to repay your debts.

You don't have to hire a lawyer to file for bankruptcy, but I think that it makes sense to do so. A bankruptcy attorney that is familiar with both the law and the bankruptcy court's practices can save you from making expensive blunders when going through the process.

The U.S. Courts Web site provides an electronic pamphlet titled Bankruptcy Basics that will give you a solid overview of the bankruptcy process, and provides links to the bankruptcy court that would review your case.

Read the previous letter to learn more about stopping foreclosure and the foreclosure laws in your state.