Bankruptcy & Default
Bankruptcy & Default
22 terms · 6 articles · 2 lessons on bankruptcy & default.
Bankruptcy and default are the failure modes a note investor must underwrite. Default begins at the first missed payment and progresses through 30, 60, and 90+ day delinquency to charge-off and non-performing classification.
Bankruptcy is the borrower's federal-court remedy — Chapter 7 liquidation or Chapter 13 reorganization — each with distinct effects on the secured note (automatic stay under 11 U.S.C. § 362, lien strip, cramdown, discharge vs dismissal). The voluntary petition and PACER access expose the borrower's full financial picture.
Articles
February 24, 2026
VideoForeclosure: A Complete Guide for Note Investors
Foreclosure guide for note investors: judicial vs. non-judicial processes, stage-by-stage timelines, and how it affects your pricing and returns.
January 16, 2026
ArticleWhat Happens When Your Borrower Files a Voluntary Bankruptcy Petition
Voluntary bankruptcy petitions reveal every asset, liability, and creditor under oath. Learn how note investors use petition schedules during due.
December 17, 2025
ArticleThe Foreclosure Process: A Note Investor's Playbook
Foreclosure process explained for note investors — judicial vs. non-judicial, key documents, timeline impacts on pricing, and decision points.
December 5, 2025
VideoBorrower Bankruptcy: A Due Diligence Deep Dive for Note Investors
Borrower bankruptcy due diligence: how to research cases on PACER, read petition schedules, assess lien strip risk, and spot discharged vs. dismissed.
November 21, 2025
ArticleChapter 7 Bankruptcy: What It Means for Your Mortgage Note
Chapter 7 bankruptcy wipes personal liability but preserves your mortgage lien. How the automatic stay, exemptions, and in rem rights impact your note.
November 7, 2025
ArticleBorrower Bankruptcy: What Every Note Investor Needs to Know
Borrower bankruptcy essentials for note investors: Chapter 7 vs. Chapter 13, lien strips, cramdowns, and what the voluntary petition reveals.
Lessons
Encyclopedia Terms
Automatic Stay
The automatic stay halts all foreclosure, collection, and creditor contact the moment a borrower files bankruptcy. Note investors must comply immediately.
Bankruptcy
Bankruptcy is a federal court proceeding providing debt relief via Chapter 7 liquidation or Chapter 13 repayment. It triggers an automatic stay and.
Bankruptcy (Chapter 13)
Chapter 13 bankruptcy lets borrowers repay debts over 3-5 years while keeping property. It can strip junior liens, but two-thirds of plans are dismissed.
Bankruptcy (Chapter 7)
Chapter 7 bankruptcy liquidates non-exempt assets and discharges unsecured debts — secured mortgage liens survive and remain enforceable on property.
Bankruptcy Voluntary Petition
A voluntary petition in bankruptcy is the debtor-initiated filing that opens a Chapter 7, 13, or 11 case and discloses all assets, liabilities, and income.
Charge-Off
A charge-off is a bank writing down a bad loan, not forgiving it. The debt and lien survive. Most NPLs on the secondary market are post-charge-off.
Corporate Resolution
A corporate resolution authorizes a specific person to act on behalf of an LLC or corporation — note investors need them to prove signing authority.
Cram Down
A cram down reduces a secured lien to the property's current market value in Chapter 13 bankruptcy. Junior lien holders face the greatest cramdown risk.
Default
Default occurs when a borrower fails to meet loan obligations, most commonly by missing payments. For note investors, defaults create discounted.
Deficiency Balance
A deficiency balance is the remaining debt after collateral is sold for less than owed. Deficiency judgment rights vary by state law.
Delinquent
A delinquent loan has missed scheduled payments. Loans 90+ days past due are classified as non-performing — the threshold where lenders consider.
Demand Letter (NOI)
A demand letter (NOI) is a formal attorney notice informing a borrower of default and intent to foreclose. It is the highest-converting borrower outreach.
Discharge
A discharge releases a borrower from personal liability in bankruptcy but does not extinguish the mortgage lien — a critical distinction for investors.
Lien Strip
A lien strip is a bankruptcy action that removes a junior lien when senior debt exceeds the property value, making it unsecured.
Motion for Relief (MFR)
A motion for relief (MFR) is a filing in bankruptcy court asking the judge to lift the automatic stay so the note holder can proceed with foreclosure.
Non-Performing Loan
A non-performing loan (NPL) is a mortgage where payments have stopped for 90+ days. NPLs trade at deep discounts on the secondary note market.
PACER
PACER is the federal court system's online portal for accessing bankruptcy filings, dockets, and documents — a key due diligence tool for note investors.
Past Due vs. Nonaccrual
Past due tracks days delinquent; nonaccrual stops interest accrual when collection is doubtful. Bank and credit union reporting buckets differ.
Proof of Claim
A proof of claim is a creditor filing in bankruptcy court documenting the amount and secured status of a debt. Timely filing is critical for note.
Reaffirmation
Reaffirmation is a bankruptcy agreement where the borrower voluntarily keeps personal liability on a mortgage debt that would otherwise be discharged.
Sub-Performing Note
A sub-performing note is a mortgage loan with inconsistent or partial payments, sitting between performing and non-performing status for note investors.
Wiped
Wiped means a lien has been extinguished by a senior or tax foreclosure sale, leaving the former holder with an unsecured claim or total loss.