One of the options that are recommended for homeowners facing foreclosure is that of filing Chapter 13 bankruptcy. But too many people in foreclosure seem to believe that this option will automatically end the foreclosure and they are not expecting to go back into foreclosure after filing. Unfortunately, the reality is quite different, as the vast majority of people going through this legal process end up back in foreclosure instead of completing the bankruptcy plan.

Chapter 13 bankruptcy will put the foreclosure process on hold through an automatic stay of any collection efforts by creditors, and for this reason it can be remarkably effective. If the homeowners are running out of time before their home is sold at a county auction, or the bank is not willing to work with them to put together a loan modification or other foreclosure solution, bankruptcy can give the owners a chance to come up with a better solution. But filing bankruptcy will not automatically end foreclosure or get the mortgage out of default.

The owners will have to establish a payment plan with the lender through the courts and make the payments on this plan for 3-5 years. This is designed to get them caught back up on their defaulted mortgage and other debts they may be behind on, while reducing the balances on other debts. By the end of the bankruptcy payment plan, the homeowners should be completely paid back to "current" status on their debts and the foreclosure will be ended. If the house loan is not behind, the bank obviously can not sue to take back the property to pay the mortgage.

It is important for homeowners to be aware that many bankruptcy payment plans can be quite expensive, possibly doubling their monthly debt payments. For this reason, bankruptcy may be considered just a short-term band-aid that pushes off the foreclosure or auction for a few extra months. Too many homeowners end up right back in the legal system after filing bankruptcy to stop foreclosure, but now their credit is in even worse condition, and they will not be able to file again to stop a sheriff sale, if needed.

The legal payment plan in bankruptcy is designed to give homeowners the chance to pay back the amounts they have fallen behind, while also making the regular payments on their mortgage and other debts included in the filing. Thus, their total monthly debt payment will almost surely go up quite a bit. If their financial situation has deteriorated to the point that they can not afford to pay more money to get back on top of their defaulted debt, then bankruptcy will not help for long.

Filing bankruptcy to prevent a foreclosure is not a decision that should be undertaken lightly. Although it can be the most effective solution to stop an upcoming sheriff sale or deal with an uncooperative lender, it may be better for homeowners to consider bankruptcy as a short-term bridge to the final goal they would like to accomplish with their home. This may be getting more time to sell the house or paying down some debt to qualify for a hard money loan, but homeowners should carefully consider their ability to complete a legally-mandated payment plan before relying on bankruptcy as the best method to stop foreclosure on their house.

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