Filing bankruptcy to stop foreclosure is one of the most important decisions homeowners will make when faced with the loss of their homes. It is often the least-desirable option to save the home, due to the negative credit effects, but it can be considered as a last-ditch or backup effort if all else fails. Especially if the homeowners are running out of time and the lender is unwilling to stop the sheriff sale, bankruptcy may be one of the only options that would give the foreclosure victims some extra time and an opportunity to put together a longer-term solution to the problem. But knowing when to file bankruptcy and which type is most appropriate can be just as difficult of decisions as the initial one to file in the first place.

All homeowners, when considering bankruptcy to save their homes, should first consult with a lawyer before filing the actual paperwork with the courts. Having competent legal counsel ensures that the process is followed lawfully and that the foreclosure victims will be adequately represented in dealing with the court system and their creditors. In fact, consulting with an attorney about bankruptcy and other legal options should be one of the first things homeowners do in a foreclosure situation, whether they are seriously considering filing at this early point or not. Having the plan as a backup and not needing it is much more important that needing it and not having enough time to implement the plan. When the lender has hired attorneys to sue the homeowners for the house, it is in every homeowner's best interest to seek out legal advice that will help them understand the situation and what are their rights under the state foreclosure laws.

Of course, as we recommend over and over again, homeowners should do some research on their own before interviewing potential attorneys, so that they understand how the process will work and will be far less likely to find that they are being taken advantage of by an unscrupulous attorney. Having a basic understanding of the foreclosure process and what is involved in filing bankruptcy to stop foreclosure is essential for homeowners to keep control of their homes and the methods used to end the foreclosure. They should never blindly trust anyone, not an attorney, mortgage broker, or foreclosure specialist, without a basic understanding of how foreclosure works and how bankruptcy can affect the process.

Possibly the most important consideration in the decision to file bankruptcy is how expensive the payment plan will be. During a Chapter 13 that includes the house and all mortgage loans, the homeowners will be obligated to pay both the court-ordered plan and the regular monthly payments. For homeowners not yet in a stable financial position, this may just be too much to manage and they will be in danger of falling behind again. If they miss a payment during a Chapter 13 bankruptcy, the lender can move the court to dismiss the case and they will be able to proceed with the foreclosure as if the bankruptcy never happened. The bank simply picks up where it left off before the Chapter 13 was filed, and the homeowners can not rely upon this option in the future to save the home.

Another important consideration is how much income would be freed up if the homeowners kept the house of the bankruptcy and filed a Chapter 7 instead. This would wipe out some of their unsecured debts, like credit cards or personal loans, and may put enough money back in their monthly budget to afford to get back on track with the mortgage. It is important to consider how much money would actually be freed up, and if the mortgage company would accept a repayment plan where the homeowners pay extra every month until they are caught up. If the situation is right, this may be a more beneficial solution for all parties involved.

Of course, one of the most useful aspects of filing bankruptcy is simply that is allows the homeowners to put the entire foreclosure process on hold. The law lets them take a break while they seek protection under the court and establish a plan to get their payments back on track. Even if it is just a few days or weeks before the foreclosure auction, filing bankruptcy will immediately put the process on hold and stop the sheriff sale. In this case, the homeowners may be able to begin working on some other solution to the problem while they are given more time under the bankruptcy plan.

In most circumstances involving missed mortgage payments, filing bankruptcy to stop foreclosure should not be relied upon as the best solution. Especially if the homeowners' income has not recovered from the hardship that led to foreclosure, bankruptcy can result in a very expensive payment plan that is simply unrealistic. Other options should be considered both before and after filing, such as refinancing, selling, or giving the property back to the bank, depending on the specifics of the situation. Also, it is very important that homeowners seek out competent legal counsel during any part of the foreclosure process, but especially when they are considering filing bankruptcy to stop a sheriff sale or help them save their homes.

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