Can Filing Bankruptcy Stall Foreclosure?
March 6th, 2010
If you’re attempting to save your home from foreclosure, you may be considering bankruptcy. While it can be done, there are numerous pitfalls in the process, and very few people actually complete the process. Using bankruptcy to stall foreclosure can end up saddling you with higher monthly payments and lower your credit. For most people facing foreclosure, doing a bankruptcy is just a stop-gap measure to buy themselves some extra time to make plans to move or to work out a solution with their mortgage company.
Filing bankruptcy WILL buy you some time on the foreclosure, but the amount of time you can get will vary from person to person, and largely depends on your financial situation. If you’re using bankruptcy for this purpose, you’ll be filing a Chapter 13 that’s designed to get you caught up on your mortgage payments. Whether or not you ever actually get caught up is irrelevant at this point. A Chapter 13 is where you want to start.
A bankruptcy is designed to give the people facing foreclosure some time under the protection of the law to reorganize their debts and pay back any delinquencies. The court will structure a repayment plan for you for all your debts, including your mortgage. If you make it through the plan, then your debts will be either paid off or current. Once you’re current on your mortgage, the foreclosure process will end and your house will be safe. This can take anywhere from a few months to a few years, depending on the court.
While this is the ideal situation, it isn’t the most common outcome. Many people find themselves unable to keep up with the repayment plan, even with lowered monthly payments. If they miss a payment, the court dismisses their case and the lender can start the foreclosure process again from the date of the original bankruptcy filing. In fact, a homeowner can end up worse off than before, as the bank will often try to add the late payments to the previous debt, which increases the total mortgage payoff. This can only make your credit report look worse, and may even get the attorneys involved again as the mortgage company sends their legal team after you to recoup their investment.
If you can find a way to refinance the property or sell it, you can take the house out of the bankruptcy proceedings and take a small step toward protecting your credit. Taking the house out of the bankruptcy won’t stop the bankruptcy itself, and you can still use it to eliminate your other debts. So yes, a bankruptcy can be used to stall a foreclosure, but it’s not the best strategy. There are other, more financially sound ways to make sure you maintain a decent credit standing and don’t end up owing the bank more than when you started!
Julia Vakulenko is a licensed broker associate with Tampa4U.com Realty. She has one of the hardest working Tampa Real Estate team in Florida specializing in Tampa Condos and also in2Va Team for Northern Virginia Real Estate.
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Fred Weaver is a founding co-owner of Group 46:10. He has been working in the financing/real estate business for over 7 years. Fred began his real estate career by working for a large wholesale bank as a processor and rate/lock specialist for home mortgages. After 2 years in the business, Fred transferred from the banking side of home loans to the mortgage side. While on the mortgage side of financing, Fred gained experience originating mortgages and processing files for Morgan Capital of Arizona, Inc.
Kevin is a founding co-owner of Group 46:10. He began working in the real estate business in 2007 after spending 8 years working in the finance industry for companies such as Bank One, Green Tree Financial, & GE Capital.