What happens to an encumbrance if the borrower declares bankruptcy?

When a borrower declares bankruptcy, the treatment of encumbrances, such as mortgages or liens, is influenced by the specifics of bankruptcy law. In this scenario, while an encumbrance does not simply disappear or get entirely eliminated, it retains its legal status, meaning it continues to exist as an obligation against the borrower's property. However, the priority of that encumbrance can be affected by the bankruptcy proceedings.

Bankruptcy can lead to a reorganization of debts, and this may impact how and when creditors can collect their dues. For example, a secured creditor's priority could shift depending on the type of bankruptcy filed (Chapter 7 or Chapter 13) and the nature of other claims against the bankrupt estate. Therefore, while the encumbrance remains, the overall status and enforceability of that encumbrance can change, which reflects the nuances of prioritization in bankruptcy cases.