Filing bankruptcy is one of the more complex issues for homeowners attempting to save their homes from foreclosure. The likelihood of ever completing the plan is very small, and the drawbacks are numerous, from poor credit to higher monthly payments. Most foreclosure victims file bankruptcy just to get more time to work out a solution, but how much time they will actually obtain is almost entirely dependent on their financial situations.
In theory, filing bankruptcy is designed to delay the foreclosure process indefinitely. There are really only a few ways to take the property out of the Chapter 13 bankruptcy, all but one of which is usually not a very good idea. But if the house is never taken out of the court-ordered plan, the process is designed to get the house caught up and out of foreclosure.
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A bankruptcy is designed to give the foreclosure victims time under the protection of the law and the courts to reorganize their debts and pay back the amounts they have fallen behind. In the event they are able to make it through the entire payment plan with the bankruptcy, then they will be caught up on the mortgage loan. The foreclosure will be completely over with, since a bank can not foreclose on a house where the loan is not in default. This is obviously the most desirable resolution to filing bankruptcy to prevent foreclosure, but it is also the most uncommon.
Far more likely is the possibility that the homeowners will simply find themselves unable to keep up with the bankruptcy plan payments. In this case, if they miss a payment, the case will be dismissed from the court, and the lender can start the foreclosure process up again from the day the homeowners had initially filed the bankruptcy. There is no reason for them to start over from the beginning, as bankruptcy just puts collection efforts on hold; it does not stop them entirely. Thus, as soon as the bankruptcy is dismissed, the bank will try to sell the house at a sheriff sale and add all those other late payments to the homeowners' credit report, and increase the total mortgage payoff again, get the attorneys involved again, and do whatever they can to get as much money as possible.
The final way to take a property out of bankruptcy is for the homeowners simply to request that the mortgage be taken out of the plan. They can do this at any time, although it is not recommended except under certain circumstances. Also, if they voluntarily decide to dismiss the bankruptcy, because they have found someone to refinance the loan or a buyer to purchase the property, the foreclosure process can start up again, just as in the case of missing a payment on the plan. Of course, if the foreclosure victims inform the mortgage company that they are working on a solution, and prove that this was the reason the bankruptcy was dismissed from the court, the lender may be very willing to give some extra time to close on the deal.
If the homeowners make all the payments on the reorganization plan during the bankruptcy, though, the process is designed to end the foreclosure entirely. But it will not delay the foreclosure if they start missing payments on the plan. Homeowners who are currently in a diminished or unstable financial position, relative to their position before falling behind, should carefully consider whether or not filing bankruptcy to stop foreclosure is a wise decision or not. This should involve interviewing several potential attorneys who can file the paperwork and walk the foreclosure victims through the process. Going into bankruptcy is never an easy decision or a magic solution, but it can give the homeowner the extra time they need to work out a more permanent conclusion to the foreclosure.
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