Far too often, homeowners wait until very late in the process of foreclosure to begin thinking about methods that would save their home. By the time a sheriff sale has been scheduled, they may be so far behind on the mortgage that there is little chance of establishing a workout solution with the bank, and their credit may have deteriorated to such levels that there is no chance of qualifying for a new loan. But not all hope is lost even at this late date, as homeowners can consider filing bankruptcy as a last resort to keep their home from being lost to foreclosure.
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Homeowners can file bankruptcy to stop foreclosure and it will put the process on hold during the length of time that the mortgage is tied up in the courts. Anyone considering this option needs to talk to a bankruptcy attorney very quickly, though, as some states now have mandatory waiting periods before people can file for legal protection. If it will take a week to get the paperwork together and complete any requisite credit counseling or other program, then the the homeowners should not expect they can file bankruptcy the morning of the trustee sale -- by this time, it will be far too late to seek the protection of the courts.
But if they file in time, the bankruptcy will automatically postpone the county auction and put the foreclosure process on hold. For homeowners who file in self defense, in order to get time to find another solution, they can usually get at least 30-45 days for the legal payment plan to be set up, and potentially more if they manage to make a few payments on the bankruptcy plan. The homeowners may go into bankruptcy knowing that it will be a short-term solution and they will not be able to complete the plan, but every month they make the payment, they will have bought more time to keep the house out of foreclosure.
There is really no downside to using bankruptcy in this manner besides the impact on the homeowners' credit. Obviously, their credit is bad enough with a bunch of late mortgage payments and a foreclosure already reflected. Can it go even lower with a bankruptcy? Absolutely, but probably not much lower. Either way, the homeowners will have a hard time getting a loan for a few years after this whole experience. It will be up to them to decide whether to take all the bad medicine now and get the worst of the credit consequences over with right now to avoid even more financial troubles in the future.
But after the owners miss a payment to the bankruptcy plan, the lender will have the house taken out of the plan so they can proceed with the foreclosure again. The clock will start ticking again immediately. At that point, the lender does not start all over again; it starts up the foreclosure from where it was left off before the bankruptcy filing. This means that they will only have to set up a new trustee sale and the house can be sold in a matter of weeks. So, when homeowners dismiss the bankruptcy on their own or miss a payment to the court, they will have to move very quickly to put together the final solution to save their home.
Despite waiting to stop foreclosure and having few options left by the time a sheriff sale rolls around, homeowners can rely on filing bankruptcy as their best chance to defend their property from being taken. Although they may feel guilty about procrastinating, the legal process of bankruptcy is designed to help people in such situations seek the protection of the courts to get a fresh start with their debts. Even if they know that the bankruptcy may not last long, homeowners may be able to use it to put together a more appropriate, longer-term solution to pay back their mortgage and begin repairing their credit.
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