Bankruptcy Law Questions? Ask a Bankruptcy Lawyer.
So long as you include the house in the bankruptcy, do not re-affirm the debt, and make sure the mortgage is specifically discharged, then the lender can never seek any type of damages against you - including a deficiency judgment.
It is possible that the lender will file a motion to lift the automatic stay (once a person files bankruptcy, all creditors are stayed/prohibited from seeking any type of recovery from the debtor) and reclaim the property. If this happens, the lender will take the property and sell it at foreclosure to satisfy all or part of the debt. Any deficiency will be discharged in the bankrupcty.
I heard that the new bankruptcy laws require those making decent incomes to pay their debt over time - how would this affect my situation?
It's just harded to file a Chapter 7 - full liquidation. If you don't qualify for a Chapter 7, you'd have to file a Chapter 13, which is a re-organization of debt in which you pay your debts over time 3-5 years.
Under the new rules, the first step in figuring out whether you can file for Chapter 7 is to measure your "current monthly income" against the median income for a family of your size in your state. Your "current monthly income" is your average income over the last six months before you file. If your income is less than or equal to the median, you can file for Chapter 7.
If your income is more than the median, however, you must pass "the means test" -- another requirement of the new law -- in order to file for Chapter 7.
The purpose of the means test is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to repay at least a portion of your unsecured debts over a five-year repayment period.
If you don't qualify, you should be eligible for filing a 13.