The questions that homeowners in foreclosure have are nearly endless. What are the consequences of going into foreclosure? Should homeowners be worried about being sued after they lose a home? If so, would it be better to file bankruptcy before the bank can sue for a deficiency judgment, or after? And what about their credit after facing foreclosure -- how long will it be scarred and what does that really mean? Thankfully, many homeowners will have similar experiences and the answers to these and other questions may be found relatively easily.

First of all, there is almost zero chance the mortgage company come after their former clients for the deficiency after the house is sold at the sheriff sale. Mainly for practical reasons, banks hardly ever do this, because it will cost them more time and money to sue homeowners after the foreclosure has ended. Furthermore, the foreclosure victims did not pay back the bank on the mortgage or the foreclosure judgment, so the lenders have little reason to expect that previous homeowners would ever pay back a deficiency judgment for tens of thousands of dollars relating to a house that they no longer own. It makes more sense from the bank's perspective to spend their resources trying to sell the house on the market, rather than pursuing more credit.

Therefore, if homeowners are considering bankruptcy in order to clear up their credit in anticipation of a deficiency judgment, they may want to hold off on filing right away. The chance the bank will sue them after the foreclosure for a deficiency is not very likely. But if the mortgage company does decide to sue them (which would be a huge shock to me), then the foreclosure victims may be able to have the debt discharged through bankruptcy.

But in the short term, the most relevant reason to file bankruptcy to stop foreclosure is to avoid having the home sold at a sheriff sale. Bankruptcy will put the entire foreclosure process on hold, which may give the owners the time necessary to sell the house or use the legal payment plan to get their defaulted mortgage back on track. Using the law in self defense to avoid losing a house to an aggressive bank is a quite acceptable reason to file bankruptcy, if there are no other options to stop foreclosure that can be closed before the auction date.

In terms of the credit situation after the home has been saved or lost, in the short term the homeowners will not be able to get any new credit at a decent rate -- not for at least a couple of years. This is mostly due to the large number of late mortgage payments that typically lead up to the foreclosure lawsuit. So homeowners who have just gotten out of foreclosure or bankruptcy should take this opportunity to pay down the debt they already have and start a savings plan. Then in 2-3 years, their credit may be good enough and the foreclosure far enough away that they can obtain new credit lines, refinance an existing loan, and borrow money at competitive rates of interest.

In terms of being able to qualify for a new mortgage or large loan after foreclosure, the owners' savings and down payment will be much more important than just their credit score. Banks will overlook the poor credit caused by the foreclosure if the loan applicants are putting a good amount of money into whatever asset (car, new home, etc.) that they are trying to get a loan for. This reduces the risk that the bank assumes, since they will be loaning less than the asset is worth and it shows that the homeowners are also financially invested in paying back the loan on time.

A few years of poor credit may just give homeowners the breathing room to pay off their credit card, personal loan, or medical bill debt. Not being able to borrow and saving helps homeowners escape from the credit trap and keep out of debt slavery. And if they can save money, then they will have more resources to use as a down payment or emergency fund to show new lenders that they are financially responsible enough for a new mortgage or other loan.

Foreclosure, although it is a depressing, devastating financial situation to be in, is not the end of the world. Neither is collections, repossession, bankruptcy, or judgments. The most difficult aspect is just not knowing what will happen next and what risks are involved in the foreclosure process. This is why most homeowners have more questions than answers when trying to save their homes. But even the answers to many of these questions are not difficult and should give some hope in even the most difficult foreclosure situation.

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