Bankruptcy is not an all or nothing event.  Anyone going through a Bankruptcy can choose NOT to include debts and obligations.  They can choose to include $5000 a month in unsecured credit card and department store debt to be included then they can also elect to "reaffirm" their car, boat and house.  The court will look at all of petitioners assets and determine specific value - and if it falls under whatever the state exemptions are they can choose to continue pay. 

For houses, the states Homestead exemption dictates how much equity is exempt from BK..  Here in Indiana, I think it is $35k (I need to check).  If I was going to go through BK and had less than $34,999K equity in my home no creditor can attach a lien on my home.  If I had $50k equity in my home, in theory a creditor I placed on BK that I owed $5k can petition the court and attach the equity on my home to recover their $5k.

Pretty much the same thing for a car or a boat or jewelry for that matter.  The petitioner must account for all assets and anything owned (including furniture and clothes) that is valued over the state exemption limits for personal property is fair game for the creditors.  In some cases the trustee assigned by the court can get the "stuff" and hold a fire sale and distribute proceeds to the creditors.

The BK/Foreclosure choreography goes something like this...

If a borrower gets behind on house payments, the lender may call the loan in default (notice of default / NOD), accelerate the debt, and begin foreclosure proceedings. When this occurs, the full balance of the note is due, in full, immediately. This is usually preceded by the lender's refusal to accept monthly payments because when they do it reaffirms the note and the monthly payment agreement.

In the event a lender begins foreclosure, the borrower receives a notice of the foreclosure proceeding. Unless the lender is willing to accept payments to reinstate the loan, the borrower will have to pay the full balance remaining on the loan, or can file bankruptcy for protection to stop the foreclosure.

A bbankruptcy filed before the foreclosure sale date willl stop the foreclosure or sherifffs sale from taking place. Under Chapter 13, a borrower can make regular monthly payments and be given a reasonable period of time to bring the loan payments up to date to save the property.

In today's chaotic world and sheer volume of hardship out there, bbankruptcy may be the best solution.  I hate sharing this secret but what was once the last resort is becoming the better of options many borrowers are facing today.  There are a lot of factors and dynamics at play but FICO, FHA, VA and Fannie have lower barriers and penalties with a BK compared to a foreclosure or Deed in Lieu of.  I have a Lease-Option tenant on my own property that just finished a Chapter 13 and we secured an FHA loan at prime rates 3 weeks later.  FHA barriers for Foreclosure are 3 years.  A Chapter 7 is typically 2 years but can be sooner based on circumstances.

One additional option is to contact HUD for mortgage assistance. Sometimes creditors will agree to stop foreclosure while HUD is reviewing a file.

I am a licensed Indiana Real Estate Broker  - not a bankruptcy attorney or mortgage lender so take this answer for what it is worth.

 Best Regards,    Russ Palermo, Liaison Properties LLC