The Bankruptcy Code gives homeowners facing foreclosure the right to cure the default any time up until the foreclosure sale process is completed. The key word here is "process," and state law determines what the process is for a valid auction or sheriff sale. Until this has been completed, homeowners who file bankruptcy can use the federal laws for another chance to save their home and cure the default.

The Bankruptcy Code itself does not even determine when a house is considered "sold" for the purposes of a valid foreclosure sale. This means that state foreclosure laws will most likely be used in cases where borrowers attempt to pay off a loan through bankruptcy, even after a sheriff sale. Another aspect that works in favor of homeowners is that many states require an auction to be confirmed before it is valid.

This means that homeowners who file bankruptcy have rights during the foreclosure process that are safeguarded at least through the sale of the property. These rights may be guaranteed for even longer than that, depending on how the confirmation process of the auction works after the home has been sold by the courts. If there had been a bankruptcy, the lender may not just be able to sell the house and take it over right away.

Redemption rights may extend the rights of the borrowers even longer. In states that have a redemption period, the borrowers are given a set period of time in which to cure the default even after the home has been auctioned at a trustee sale. But for those homeowners in states where a redemption period is not available, filing for bankruptcy may create a pseudo-redemption period through the right to cure.

However, rulings by state courts on this issue may determine how long this extra right to cure lasts. Some courts have ruled that the foreclosure sale process is completed once the gavel falls at the auction. In these cases, filing bankruptcy will not extend the time to cure the default for any significant period of time. Once the auction has been conducted, the sale process is complete, and the right to cure has expired

Other courts, however, have ruled that the sale process is not completed until the appropriate company or government agent has executed a transfer deed after the sale, the purchase price of the auction has been paid in full, and the sale has been confirmed by the court. In these states, homeowners may be able to file bankruptcy and have the property listed as a part of the bankruptcy estate and turned over to the trustee.

If this happens, the lender and local government will not be able to move forward with any other collection activities or actions to transfer the property. The automatic stay is in effect, the homeowners have an interest in the house, and the property is now a part of the bankruptcy proceedings. If the sale is confirmed or the deed transferred after the filing, it may be reversed at a later date as a violation of the stay.

Filing bankruptcy in this situation may result in homeowners having several additional months to cure the default. While the automatic stay is in effect, the lender, new owner, or local government can perform no action to confirm the sale or remove the borrowers from the house. Even if a Chapter 13 is filed, the owners will be able to cure the default through a repayment plan -- even though their home was sold at auction.

There are a whole list of problems with filing bankruptcy to stop foreclosure, but for homeowners whose financial situations have recovered and who can cure their default, it may be a decent solution. Even after a sheriff sale, borrowers may be able to submit a plan that allows them to save the home. Sometimes, just filing bankruptcy is enough to set aside a sale and give the owners more time and one more chance.

One of the reasons that lenders do not like when homeowners file for bankruptcy to stop foreclosure is that the automatic stay prohibits the bank from moving forward with the foreclosure process. The bank may have to give up some of the eventual profits of selling the home at auction and reselling it later if the borrowers are able to get back on track through the bankruptcy process.

In retaliation for the filing of bankruptcy by a borrower, banks and their lawyers have read ambiguous contract clauses to allow the imposition of ridiculous junk fees on accounts. The fee most likely to be junk is when lenders charge monitoring fees to a mortgage when homeowners file for protection, even if they file a Chapter 7 which does not actually effect the lender's lien on the property.

Of course, these fees are not even adequately disclosed to borrowers as they are charged. Monitoring fees once a homeowner enters bankruptcy may be assessed on an escrow account or taken from the suspense account. A suspense account is a tactic used by banks to hold payments from borrowers but not credit these payments to the account, and is often used during foreclosure to take payments but technically refuse them.

Many lenders attempt to justify these charges through the clause in the mortgage contract that allows the bank to charge to the homeowner any costs for litigation. But these clauses are written with the maximum amount of ambiguity and do not even seem to permit such junks fees as a cost to monitor the bankruptcy process. Even based on the language of such clauses, though, the fees may be prohibited.

For instance, litigation clauses in mortgage documents may only allow the imposition of fees on accounts when the lawsuit affects the property or the lien, which is not the case for bankruptcy proceedings. Also, the litigation must be to enforce the lender's rights, and a bankruptcy is not an action to enforce the rights of the lender, and so a monitoring fee may not be allowed by the mortgage contract.

Also, attempting to collect fees from borrowers who are in bankruptcy may be a violation of the automatic stay. Especially if the lender tries to obtain payment of the fee directly from the homeowners, the stay may be violated. Another section of the bankruptcy code prohibits collecting fees not authorized by the plan as well as failing to credit payments made under the plan. Banks, in imposing monitoring fees, may violate this section.

Finally, lenders that impose these bankruptcy junk fees may also be violating state unfair and deceptive acts and practices statutes. Relying on ambiguous contract language is a potential violation, while charging fees not authorized by the contract is another. Homeowners attempting to file bankruptcy to stop foreclosure should be aware of these abuses that lenders state are authorized by the loan documents but really are not.

It seems that, with every action a homeowner takes to defend against foreclosure or get back on track with the mortgage, the lender makes it more difficult and imposes more junk fees. The fact that the lenders state that they do not want to own properties and would rather work with borrowers is contradicted by almost all of their actions, even in cases where homeowners have no other option than filing bankruptcy.

When it comes to bankruptcy reform, the only type that the politicians and bankers like is changes which make it more difficult, more time consuming, and less efficient for borrowers and homeowners. The point is to push foreclosure victims into a difficult bankruptcy, while the banks themselves get bailed out by these same taxpayers to avoid the same fate.

Over the past year of the housing crisis, with foreclosure rates remaining at historic highs, one of the proposals to fix the problem was allowing bankruptcy judges to reduce the amount that homeowners owed on a first mortgage. This would have made it easier for the borrowers to pay back part of the loan in the event the property value had fallen.

Of course, the fact that this solution makes some sense and is perfectly acceptable in the case of second homes and other types of debt and other types of bankruptcies (Chapter 11, for instance) did not change the banking industry's opposition to it. Although giant corporate-government bank Citigroup supported the bill, the Senate defeated legislation that would have allowed it.

Homeowners facing foreclosure, according to the politicians, should not be able to enter into a government bankruptcy court and have their mortgage balance reduced. Instead, they should be forced to enter into a government foreclosure relief program to have their mortgage balance reduced. The key difference is how much control the banks have over the reduction.

In most of the government programs to help homeowners qualify for mortgage modifications, the lenders participation in the plan is voluntary. And in practice, the lenders' participation has been lukewarm at best or nonexistent at worst. Take, for example, the FHA Hope for Homeowners program, which has been given $320,000,000,000 in taxpayer money and has helped one single homeowner.

Thus, the government modification programs have been a disaster because they allow banks to work as hard as they want to help borrowers. The banks, in turn, give homeowners bad deals or fail to negotiate in good faith with borrowers. Instead, they rely on their bailouts and other free money programs to prevent them from having any motivation to assist borrowers in stopping foreclosure.

The banks know that, if homeowners could file bankruptcy and get their mortgages modified, there would be fewer reasons to go to the government for free handouts. Borrowers would be able to file a Chapter 13, have the mortgage balance reduced to the market value of the home, and be able to make payments to the lenders again. This would be a tragedy for the lobbyists and mortgage companies!

One of the objections to the legislation was that it would make mortgages more expensive. But during the real estate boom, mortgages were as expensive as they ever have been. Although this was not in terms of interest rates, once the bubble inflated to astronomical levels, the amount of a loan a borrower needed to take out just to qualify for a mortgage was extraordinarily high.

The Federal Reserve had lowered interest rates to historic lows. Banks reduced lending standards knowing they could get bailed out by the government if anything went wrong. Loans were given to people who could never afford to pay them back, inflating the demand and rising prices even further. Some of these loans reset at high interest rates after a few years on extremely overvalued properties. None of this was a good deal.

And now, the main objection to allowing bankruptcy judges to reduce mortgage balances is that it would make it more expensive to take out a mortgage? How could it be any more expensive than taking out a loan for 250% of its actual value at a teaser rate that would reset to 12% interest in a couple of years? The banks could not make the mortgage market any more expensive if they tried.

Regardless, the banks worked hard to lobby politicians to defeat the legislation, and now the mortgage banking industry is celebrating its victory. But what have they won? Nothing more than ability to force homeowners to keep paying for properties that are overvalued, while the banks themselves line up to receive more and more taxpayer money in order to avoid the same fate of a difficult bankruptcy.

For many homeowners attempting to save their properties from foreclosure, bankruptcy ranks as just about the last resort before giving up on the house completely. However, before filing for bankruptcy or abandoning the house, borrowers may wish to consider at least a few other options to deal with a large debt load.

While many homeowners will try to refinance as soon as they fall behind on their mortgage by a couple of months, the current housing market throughout much of the country has decimated home values, making it almost impossible to qualify for a new loan. Unless borrowers have a significant amount of equity, refinancing is usually not a realistic way out of foreclosure.

Selling the home, which is another tactic many homeowners attempt to avoid foreclosure, is also much more difficult now than it was just a few years ago. Again, this is due to the declines in property values, as well as the overall tightening of lending guidelines for residential mortgages. Until this market stabilizes, banks will be wary of lending on properties that may quickly depreciate.

This leaves most borrowers with what they see as few options to escape a financial hardship with much of their credit scores or finances intact. There are a number of lesser known ways to stop a foreclosure, though, without having to rely on filing bankruptcy just to get a second chance or some extra time to move out of the house.

Many times, the mortgage is the largest bill that homeowners have to take care of on a monthly basis. So when a financial hardship comes up, most of the other debts fall behind until the owners can no longer pay to keep their home. But what can borrowers do to address the mortgage if they are able to recover before losing the home completely?

Loan modification is an option to avoid foreclosure and bankruptcy that is growing in popularity, despite several high-profile programs the government have put together that have utterly failed. But a modification, if done correctly, can lower monthly payments, put the arrears on the end of the loan, or completely renegotiate the terms of a mortgage.

For homeowners who have just experienced a temporary financial hardship, mortgage modification can be an excellent solution to keep out of bankruptcy and save the home from foreclosure. The amount of money they save on their monthly loan payment can be applied to paying down other debt and recovering from the financial setback.

However, loan modifications do not address the other debt that homeowners may have racked up during a hardship. Collection calls from credit card companies may increase dramatically, as well as threats of lawsuits, repossessions, or liens being placed on the home. This unsecured debt must also be taken care of somehow.

Instead of filing a Chapter 7 or 13 to eliminate or reorganize these debts, borrowers can often negotiate directly with credit card companies or collection agencies to stop bankruptcy and stay out of court. Debt consolidation and settlement companies offer such services, but there are also online resources available that teach homeowners how to negotiate down their unsecured debts.

Finally, if worse comes to worst, and the homeowners are sued for foreclosure or by an unsecured debt holder, there is always the possibility of defending the suit in court. Most banks are easily able to walk all over borrowers in court because so few foreclosure victims defend their homes against a lawsuit. Just attempting to defend the home will often convince a bank to negotiate instead of pursue legal action.

With credit card companies or collection agencies, it may be even easier to defend a lawsuit. Most collection agencies do not follow all of the lending and debt collection laws, and their attempts to sue borrowers can easily be thrown out. If nothing else, the more it will cost them to pursue such a case due to borrowers defending themselves in court, the more likely it is a settlement can be negotiated.

These three options can stop bankruptcy, help homeowners deal with foreclosure, and assist them in financial recovery after a hardship. While they all require substantially more work than just filing Chapter 7 or 13, they also have more short and long term benefits to borrowers than taking the case into the federal bankruptcy courts.

Most homeowners facing foreclosure would rather avoid both losing the home and having to file bankruptcy. They are concerned about the social stigma of filing, the damage to their credit record for the next seven years, and the difficulty of borrowing money for a home or auto loan in the future. However, there are a number of benefits, under the right circumstances, to filing for protection under the federal bankruptcy laws to reduce mortgage debt.

One of the greatest of these benefits is that, with a Chapter 13 (reorganization) bankruptcy, the courts are able to take secured junior mortgage loans and have them unsecured. Any second or third mortgage or Home Equity Line of Credit (HELOC) can be reclassified as an unsecured debt for the purposes of bankruptcy. Of course, this can not be done in every instance, and there are requirements that must be met by the loan and the value of the property.

To take a mortgage off of a property, the loan must no longer be secured by the home's value. For example, take the following case of a property that has declined in value after several loans were taken out on it:

Home Value: $250,000
First Mortgage: $265,000
Second Mortgage: $40,000
HELOC: $15,000

The second mortgage and HELOC in the above example are no longer secured by the value of the property; in fact, even the first mortgage is only partially secured. This is not a rare example, either, as many homeowners have taken out more than one loan on a house, lenders relied on inflated appraisals, and now property values have crashed back down to reality.

If the owners of the property declared bankruptcy, these two junior liens could be reclassified as unsecured. Even if the house could be sold for its fair market value at the present time ($250,000), the second mortgage company and HELOC provider would receive nothing from the proceeds – therefore, they are, for all practical purposes, unsecured by the property right now.

But what does this really mean for homeowners? Who cares if a debt is classified as secured or unsecured? After all, the bankruptcy filers have to pay back the money they borrowed and pledged their home as collateral, right?

Wrong. When bankruptcy judges take a secured lien on a home and reclassify it as unsecured debt, the balance can be reduced on it. Homeowners would not have to pay back nearly as much as they owed on the debt and the mortgage would be treated just like any other unsecured loan like a credit card or personal loan. This can represent a significant savings to the homeowners and a large loss to lenders that made ill-advised loans on properties whose values have now fallen.

Even better, the amount that homeowners are required to pay back to a lender is determined by their income – not the original amount of the debt. In a Chapter 13 bankruptcy case, petitioners are put on either a three or five year payment plan, and their disposable income is used to calculate how much money the lenders will paid back on their loans. For families whose income has dramatically fallen due to job loss, this may be a way of bringing their debt load back in line with their ability to pay.

Chapter 13 bankruptcy, just like any other solution to foreclosure, is not right for everyone. But for homeowners who qualify, can afford the payment plan, and have consulted with a good personal bankruptcy lawyer, the ability to reduce their debt burden on second mortgages or equity lines of credit represents a large benefit for filing.

Months ago, when the foreclosure crisis was raging through much of America, politicians had a brief moment of clarity when they proposed allowing bankruptcy judges to modify mortgages in Chapter 13 proceedings. The banks, of course, fought against the proposal and it was defeated in order to make room for trillions of dollars in free money transferred from homeowners and other Americans straight to the banks.

But now Citigroup, after being bailed out for tens of billions of dollars by the federal government, has seen the light and decided that maybe government intervention in bankruptcy loan modification is not such a bad thing, after all. Thus, the proposal has been reincarnated in both houses of Congress and is expected to pass. While this may be good news for borrowers, it signals something far more serious for the rest of the country.

After all, where does Citigroup get this huge influence to help block a bill when it is introduced the first time which would have helped it avoid needing a bailout, but then turn around and support the bill, assisting in its broader support? It could not be any clearer that the politicians are nothing more than entertainers keeping us all distracted with meaningless hearings and television interviews while the financial power centers make policy in this country.

Politicians are supposedly elected to represent all of us Americans -- not giant corporations, think tanks, and industry associations. But how is the fact that Citigroup dropped its opposition to the bankruptcy reform bill a sign that the proposal has cleared a "key hurdle?" How much is the support of Citigroup worth compared to the suffering of millions of homeowners facing foreclosure and bankruptcy? Obviously to the politicians, it is worth a lot more.

Although the bankruptcy plan is probably overhyped anyway as a meaningful solution to foreclosure, it may do more for homeowners than many of the government's ill-conceived and poorly administered programs so far. The Hope for Homeowners Act has been a complete failure, and more and more families are filing for bankruptcy every day in order to stop foreclosure for a few extra months.

Is it good news that Citigroup, one of the banks instrumental in creating the foreclosure crisis, has dropped its opposition to allowing bankruptcy judges to modify mortgages and that this acquiescence is seen as a major support for the bill? I don't think so. This is nothing more than the bank trying to save face when, in reality, it is just showing how corrupt the political process has become and how much influence the financial giants have in creating, maintaining, and reducing the effects of these crises.

If you do not have any other debts besides your home, it might not make sense to file Chapter 13 bankruptcy to avoid a foreclosure. Chapter 13 can turn out to be a pretty expensive repayment plan, so if you do file, you should know what to expect as a monthly payment.

First of all, you have to keep paying your regular mortgage payment to the bank every month. You have to keep on track with the normal payment throughout the period of the Chapter 13 repayment plan. This monthly bill will not be lowered by the courts.

You also have to pay back a portion of the amount you are currently behind on the loan. This is paid back over a period of three or five years, depending on the circumstances. If you are behind by $10,000, then divide that by 36 or 60 months to see how much extra you will have to pay to get back on track and avoid losing the protection of the federal bankruptcy court.

And finally, you will have to pay the court 10% per month as the trustee fee for administering the payment plan. If your normal payment is $1,000 per month, and you will have to pay back $400 extra to get current with the mortgage, add another $140 per month for the fee that goes to the bankruptcy court.

So will that save your home? Will you be able to afford to pay those three items every month until you are back on track? You can propose a 5-year payment plan to the court, but you might be forced into a 3-year plan if your income and expenses warrant it. Can you afford the shorter plan or only the longer one?

These are questions you will have to determine before you file for Chapter 13, and you might want to consult with a personal lawyer to find out more about the process and other options that avoid both foreclosure and bankruptcy. There are also Do-It-Yourself books available online or at bookstores that explain more about Chapter 7 and 13, as well as other solutions to financial hardships.

Bankruptcy might help in a foreclosure situation, but the homeowners themselves are the only ones that should decide whether to file or not. They need to do do some research on how each type of bankruptcy, Chapter 7 or Chapter 13, would work in their specific situation, as well as consult with an attorney on how to file.

Chapter 7 would allow borrowers to eliminate their other debts, like credit cards, cash advance loans, and personal loans, and use the rest of their monthly income on paying their mortgage. If getting rid of the other personal and cash advance loans would help free up the monthly budget, then filing bankruptcy may be worth considering.

In a Chapter 7 bankruptcy, also have the option of including their housing debt in order to discharge the mortgage. They would not be able to keep the home, but this would stop foreclosure and the lender would just get the house without going through the entire foreclosure process. The courts would make sure that a deficiency judgment would not be possible, as well.

If homeowners file Chapter 13 bankruptcy to stop foreclosure, they will be put on a legal payment plan established by the courts to pay back the amount they are behind on the mortgage. The plan will last 3-5 years, and by the end of it, the owners will be completely caught up on the loan and any other debts that they are currently are behind on.

But all borrowers need to be careful with a bankruptcy repayment plan. It can be quite expensive, as they are required to pay their normal monthly mortgage payment, plus a portion of the total that they are behind. If their income can not sustain that, then Chapter 13 bankruptcy may not be the right decision.

But without knowing a lot more about any homeowner's circumstances that led to foreclosure, it would be hard for anyone to recommend one type of bankruptcy or another. Borrowers need to find out exactly what they can and can not afford, and possibly talk with a personal bankruptcy lawyer so they have a better idea of what to expect.

One of the most recommended but least desirable options to save a home from foreclosure is filing bankruptcy. It seems like a solid legal defense against eviction and a way to get more time to work out another solution, but few homeowners really want to damage their credit for nearly a decade just for another chance to save their home, especially when other options may require decent credit. But filing bankruptcy should be considered a last resort by most homeowners in case nothing else works out in time.

In any case, filing bankruptcy and including the mortgage loan in the petition will temporarily stop any foreclosure proceedings or other collection efforts by the lender. The federal order for relief (also known as the automatic stay) will go into effect immediately, which will prohibit any creditors from pursing collection activities for as long as the stay is in place. This means that the bank can not move ahead with its lawsuit against the borrowers, nor have the house sold at a county sheriff sale.

But where the house goes from there depends on whether the owners file Chapter 7 or Chapter 13 bankruptcy. There are big differences between the two, and state exemptions and rules may determine which one filers best qualify for and what property they would get to keep under various circumstances. The best idea is probably to consult with a personal bankruptcy lawyer before moving ahead with either filing, although it is quite possible, easy, and cheap for homeowners who understand the process to file bankruptcy on their own using a book or online examples.

A Chapter 7 will allow debtors to discharge much of their unsecured debts and secured debts, as long as the creditors have access to the collateral for which the secured loan was guaranteed. That means that homeowners can discharge a mortgage under this type of filing, but the bank will get to keep the house as satisfaction of the debt. Homeowners will also not have to worry about a deficiency judgment (as rare as they are to begin with), as the house will be considered the best the bank can expect and any remaining balance on the mortgage will be discharged. If the borrowers owe $150,000 but the house has declined in value to $100,000, the bank can not try and sue for that difference later on -- it is simply discharged.

With a Chapter 13, borrowers will enter into a payment plan in order to get caught up on the debts that they have fallen behind. Currently, bankruptcy judges do not have the authority to lower mortgage balances or negotiate the regular payment terms, so homeowners would have to pay back the total amount they have fallen behind as well as keep up on their current regular monthly mortgage payment. For many homeowners, this can be prohibitively expensive; although, if they are able to make it through the 3-5 year bankruptcy plan, they will save the home and be current on the loan. However, it should be kept in mind that it they fall behind on the bankruptcy plan, the bank will quickly have the automatic stay lifted and put the house back into foreclosure.

Homeowners need to consider the pros and cons of filing bankruptcy as a solution to foreclosure. On the one hand, collection actions are halted immediately, the house can not be auctioned off, the mortgage can be discharged with no possibility of a deficiency judgment, and it is one more chance to get caught up. On the other hand, borrowers will not be able to keep their home in a Chapter 7 discharge, and the payment plan may be too expensive in a Chapter 13, and neither filing will stop foreclosure entirely as it only puts the process on hold while debtors use the federal courts in defense against creditors. Although bankruptcy should be a tool every foreclosure victim may have to rely on, it should only be used in the most appropriate circumstances.

When homeowners consider filing bankruptcy to put a hold on the foreclosure process, most are attempting to save their homes and establish some sort of payment plan. Unfortunately, legal payment arrangements established in a Chapter 13 bankruptcy can often be too expensive for homeowners just recovering from a financial crisis. This is why filing Chapter 7 to eliminate the mortgage and other debt may be a better solution and provide better peace of mind for some borrowers unable to keep their homes.

Contrary to conventional wisdom, mortgage loans (firsts, seconds, HELOCs, and so forth) can be discharged in Chapter 7 bankruptcy proceedings so that homeowners no longer have to worry about paying an expensive loan when their income has dropped. But with a discharge, the owners will not be able to keep their house or remain living there for very long, as the bank will receive the collateral back as a result of the loan being eliminated. So there must be other reasons for owners to consider this tactic, since it does not actually save the house.

The main benefit of doing this is that homeowners are able to stop foreclosure from moving any further along in the legal process, meaning no more court documents, lawsuit paperwork, sheriff sale dates, or eviction hearings. Even if the borrowers move out of their house before the foreclosure process is completed, the courts will still move ahead with the necessary procedures to sell the house to satisfy the mortgage lien. Discharging the mortgage through bankruptcy ends the lawsuit immediately -- the mortgage company must cease all collection efforts on the loan, which will then disappear completely upon discharge.

Another important reason to consider filing Chapter 7 to eliminate the mortgage and move out of the house is the possibility of avoiding deficiency judgments after foreclosure. Although few banks sue their former clients again after the sheriff sale for the difference between what was owed and what the property sold for, it may be best just to discharge the mortgage and not worry about any further lawsuits regarding this property. With the credit crisis in full swing, some banks may get desperate enough for cash that they start attempting to collection on deficiencies from borrowers who obviously had problems paying their debts just a few months ago.

Bankruptcy is an important legal defense that homeowners have against unmanageable debt burdens and aggressive collections efforts, whether they are from credit cards, collection agencies, or mortgage companies. Collectors will never give up trying to go after a debt, and every day of the foreclosure process can be a nerve-wracking experience for owners unfamiliar with how it works and the time frames for each step. Although the social stigma of bankruptcy may be severe, many debtors will liberated and generally much feel better with a fresh start and no extra debt.

One concern homeowners may have is that they do not want a foreclosure and a bankruptcy to appear on their credit reports, which will virtually guarantee they do not receive a new loan for years. But if there is no way to save the home, using bankruptcy to stop foreclosure may be the best solution to get all of the bad over with at once. If the bank tries to go after a deficiency judgment months or a year after the sheriff sale, and borrowers are forced into bankruptcy anyway, they have merely prolonged the time it will take to repair their credit.

Discharging a mortgage in Chapter 7 bankruptcy is one of the lesser-discussed methods of avoiding foreclosure, potentially because it has some of the worst aspects of any solution. Homeowners neither save their home nor do they preserve much of their credit scores. But this tactic should be considered by debtors who know their financial conditions will not allow them to keep making the mortgage payment and who just want to escape from their large debts and get a fresh start in life.

One of the most important decisions borrowers will have to make when dealing with a financial hardship leading up to a foreclosure is whether to seek relief under the federal bankruptcy laws or not. Depending on their financial situation, discharging debts under Chapter 7 or seeking a legal payment plan under Chapter 13 may be appropriate, but few homeowners really want to damage their credit scores for nearly a decade.

But another equally important decision, one that will need to be made once homeowners have decided to file bankruptcy, is whether to do it on their own or with the help of an attorney. This choice will also largely depend on the financial ability of the borrowers to spend more money on legal help, as well as how diligently they are willing to complete the paperwork to make sure they file on their own correctly.

Hiring an attorney to file bankruptcy, either to stop foreclosure or just to get a fresh start after a financial hardship, is often recommended to debtors. The main reason to consider a lawyer is simply for homeowners to make absolutely sure they have filled out the forms in accordance with the laws and meet all other bankruptcy court requirements. These are not simple matters to comply with, and the new bankruptcy reform laws have made it even more difficult to meet all of the requirements; thus an attorney may be a good source of guidance.

The main obstacle for most borrowers, though, is the steep price bankruptcy attorneys can charge for filing. Over one thousand dollars may be necessary to hire an attorney, which may be out of the range of affordability for some homeowners, depending on how far their financial situation has fallen. In such cases, it may be a better idea for families to file bankruptcy on their own in order to avoid having to pay another large legal fee that there is no money for.

Thankfully, there are numerous resources for homeowners who decide to file for bankruptcy without the use of a lawyer, and the rise of the internet and self-help books have provided even more assistance. All of the forms required to file are located online at the US Courts website, and many of the information is self-explanatory. But even for the more ambiguous requirements, online searches can provide simple explanations of how to fill out each form correctly.

Also, because the laws vary from state to state, and some courts have their own extra local forms, which homeowners can typically look up and download online, or find the contact info of the court to request copies. If help is required with these forms, the district bankruptcy court can assist borrowers in filling them our correctly and putting the paperwork in the correct order.

Filing bankruptcy, even though it should be considered a business decision and not a moral one, is almost never an easy choice for homeowners. Admitting financial defeat is anathema in America, and the costs can be steep for filing with an attorney. On the positive side, however, homeowners now have more tools than ever for filing on their own and making sure their finances are protected after a hardship, giving them the best opportunities to make a fresh start after foreclosure or bankruptcy.

Most homeowners who consider filing bankruptcy in order to escape a crushing debt burden often feel guilty about bailing out on debts they originally promised to pay back. Whether they are attempting to get back on top of a mortgage through the protection of the courts or just eliminate high interest credit cards and huge medical bills, though, bankruptcy should be considered more of a business decision than anything else.

After all, it is inconceivable that a multinational corporation would go bankruptcy and its directors feel guilty about defaulting on billions of dollars of debt. Such businesses do not appear on the nightly news apologizing profusely to their creditors; instead, they are simply liquidated for whatever they are worth and the banks are paid off as best they can. If there is not enough to pay all of the debts, then the creditor are out of luck -- nothing more is done after the business' assets have been sold off.

Even worse, in some cases of insolvency, it is not the corporations that are stuck with the bills, nor are the creditors faced with huge losses -- all of the negative consequences of bad business decisions are transferred to the general public. When Bear Stearns went under, the Federal Reserve provided tens of billions of dollars for a bailout courtesy of American people, and legislators are proposing similar acts to bail out the mortgage giants Fannie Mae and Freddie Mac and sticking the bill with all of us.

Never will any of these corporations apologize to each and every one of us about their illogical business decisions, misplaced trust in people who could not pay their mortgages, or failure to plan for a future longer than the end of this fiscal quarter. In fact, many bankrupt companies end up blaming the problem on the actions of the people in other sectors of the market; e.g., the soft economy, greedy speculators, bad press, and so on will be the cause of corporate bankruptcy.

All of this should indicate to homeowners that there is no reason for shame if they need to file bankruptcy to protect their assets and financial lives against lawsuit-happy collection agencies and creditors. When economic conditions change and families experience a financial hardship, then the business of their ability to meet debt payments must also change to meet the new conditions. If there is no way to maintain a reasonable standard of living as well as pay the debt, then something must give.

There are a lot of good reasons to avoid bankruptcy, but a feeling of moral responsibility to the lenders is not one of them. If the banks all declared bankruptcy tomorrow, there would be a huge number of depositors who would never get any of their money back that they lent to (deposited with) the banks. The FDIC insurance fund will not last long enough as it stands now to meet nearly all of the coming bank failures. And there would be even fewer apologies from the banks to the people whose money they mismanaged.

One of the most important aspects of Chapter 13 bankruptcy and how it relates to the home mortgage foreclosure process is its ability to put the entire proceedings on hold, no matter how far along they have gone or when they homeowners file for bankruptcy. This means that foreclosure victims can, in many cases, wait until just a few hours before their home is scheduled to be auctioned at a county sheriff sale, and still have the sale stopped.

The stopping of an auction is possible by filing bankruptcy due to the fact that filing immediately creates a federal court order known by the term "Order for Relief." This is also commonly referred to as the "automatic stay," and prohibits any creditors from continuing to engage in collection activities while the issue is tied up in the court system. As the sale of a property to satisfy a foreclosure judgment counts as a collection effort on the part of the mortgage company, the auction is prohibited by this federal court order once the homeowners enter into bankruptcy.

Due to the Bankruptcy Abuse Prevention and Consumer Protection Act, passed in October 2005 and also referred to as the bankruptcy reform laws, homeowners with little time to find a solution need to be aware of at least one new aspect of filing bankruptcy. A new requirement stipulates that borrowers must have attended credit counseling within the 180-day period before the petition is filed with the court. If homeowners have not completed this before they file, the bankruptcy will have no effect and the filing may be thrown out (although there are some allowances for an emergency filing).

For homeowners who are considering filing bankruptcy to stop foreclosure on the day of the county auction, it is even more important to make sure the credit counseling requirement is taken care of. Courts are split as to whether or not counseling on the same day as the filing is acceptable or not, with some agreeing that same-day counseling just needs to be completed before the petition is filed, while others argue that the counseling should be done at least one day in advance. As a general rule, it may be better just to get the counseling done long before a final decision as to whether or not to file is made.

One of the main drawbacks to filing bankruptcy a few hours before the sheriff sale of a foreclosed house, though, is that the county government will typically not be aware of the automatic stay going into effect until after the house has been auctioned. The courts do not move swiftly enough to alert all creditors that the borrowers have filed their petition with the court, so it is likely the auction will go ahead as scheduled, while the homeowners will have to try and have the sale rescinded or reversed at a later date. This is because the foreclosing bank may receive no proof of the bankruptcy filing until after the auction has been conducted.

Unfortunately, this is easier said than done, due to the difficulty of convincing large bureaucracies like banks and county court systems to reverse any of their actions or decisions. Homeowners who know they filed for bankruptcy in time to stop the sale may find out later on that the house was auctioned as planned and that the county no longer lists them as owners of the property. This can be especially frustrating, as it is now up to the owners to proceed correctly to have the sale reversed and their names put back into the ownership records, a process which can take months.

Thus, filing bankruptcy in an effort to stop foreclosure at the last minute can be an effective way for homeowners to put the entire process on hold and get some breathing room. However, it is important to know all of the procedures that need to be done before the petition can be filed, and it is also important to make sure that the automatic stay has its desired effects on the auction. Homeowners can rely on bankruptcy as a last-ditch effort to save a home, but they also need to make sure they have completed the pre-filing requirements, as well as keeping track of the sheriff sale to prevent any hasty transfer of ownership from the borrowers to the lender.

Although many homeowners consider bankruptcy as one of the last options to avoid losing a property, many seem unclear on just how late they can wait to file, and how it will affect the foreclosure lawsuit. They may believe that, since the bank has already sued for foreclosure, filing bankruptcy might not have the desired result of ending that lawsuit. However, it is still possible to file and seek protection of the courts even late into the process of losing the house.

Homeowners who have recently been foreclosed on can still file bankruptcy to avoid losing their homes even though the bank is pursuing foreclosure in the local courts. Just because the lender has initiated a lawsuit to take the house back does not mean that homeowners are unable to seek protection through the federal bankruptcy court system. In fact, it is precisely these types of collection efforts that the bankruptcy laws were set up to protect borrowers against.

Essentially, foreclosure proceedings are a collection attempt by mortgage companies to force homeowners to pay what they owe on the loan, or have their home auctioned off by the county government to satisfy the mortgage if there is no other way to pay the debt. There is nothing else secretive or fancy about the process, and it is little different from a credit card company or other creditor suing borrowers to force payment of a debt. The main difference is that the mortgage debt is secured by the property, so the bank has more of an ability to force the sale of the house.

Thus, homeowners are almost always able to file bankruptcy to stop foreclosure up until the time that they are no longer the owners of the home. This typically means that they can wait until just a few hours before the scheduled sheriff sale of the property to file the bankruptcy petition, and this will stop the foreclosure process from being able to continue. Of course, it is better to file before the very last minute, but sometimes homeowners are working on another solution that falls through and need to file an emergency bankruptcy.

Once a borrower files a petition with the bankruptcy courts, the automatic stay goes into effect, which precludes lenders from being able to continue collection efforts. Because the entire foreclosure lawsuit is a collection effort, the mortgage company will have to put its process on hold until the debt is resolved through bankruptcy, either through the payment plan or a dismissal. As can be expected, most lenders do not particularly want to deal with the extra hassle this causes, but they have no other choice than to put the foreclosure on hold.

So homeowners who are facing a foreclosure or have already been sued by the lender will be able to file bankruptcy and include the house in the petition anytime until the sheriff sale. After the auction, when ownership is transferred into the name of the new owner, then it will be too late to rely on this option to stop foreclosure, because the borrowers no longer have an ownership interest in the property. But as long as they do have title to the property, they can seek protection in bankruptcy court against the bank's collection efforts.

Although bankruptcy is usually considered to be little better than losing the home outright, owners may wish to keep the idea of filing as a last ditch effort if they need more time to stop foreclosure. Bankruptcy can always be used in self-defense just to buy more time, while homeowners fight for other solutions or defend themselves against the lawsuit. Unless they no longer own the house at all, it is possible for borrowers to file bankruptcy even if they are being sued by the lender for foreclosure.

Homeowners facing a financial hardship often contemplate filing bankruptcy to get some relief from their debts, but many would like to avoid the negative consequences of this solution. Far too often, though, homeowners in foreclosure may find a solution to save their house, but they find they have run out of time and will be facing a sheriff sale. Unless they have prepared in advance for the possibility of filing a bankruptcy petition, this may no longer be an option for them.

Filing Chapter 13 bankruptcy will stop a foreclosure as soon as the papers are filed with the bankruptcy court, including immediately stopping any sheriff sale. The automatic stay goes into effect immediately upon filing, and will stay in effect as long as the issue is in the legal system. There is no one perfect time for filing Chapter 13 bankruptcy, and the longer homeowners wait to file, the more it will cost them to get out of bankruptcy and the more likely they will be to fail the legal payment plan and have the case dismissed.

Once a mortgage payment is missed, lenders will almost immediately begin adding late fees and racking up extra interest charges, which make it more expensive for homeowners to get back on track. The longer this goes on, the further behind borrowers become -- even if they have only missed a few payments, the total amount needed to reinstate can be the equivalent of many more monthly installments. This large financial burden can make it more difficult for homeowners to pay back all of the arrears through a Chapter 13 bankruptcy payment plan, and the potential of failing the plan and having the case dismissed increases greatly.

Most homeowners wait to try several different methods to stop foreclosure before relying on bankruptcy. Refinancing through a foreclosure lender or working with the lender for a mortgage modification or forbearance agreement may be easier and result in less damage to the homeowners' credit histories. In fact, bankruptcy is often recommended and used as a last option to stop a sheriff sale or put the process on hold due to the imminent loss of the house when another solution has fallen through at the last minute.

However, with the new bankruptcy rules that went into effect in 2005, homeowners should prepare sooner rather than later for the possibility of having to file as an emergency, even if they never actually need to file. The new rules now require bankruptcy counseling as a prerequisite for beginning the court process at all, so homeowners will not simply be able to file bankruptcy as a last ditch effort a few hours before their home is auctioned off by the county -- they need to file proof of completing the counseling with their bankruptcy petition or it may not be accepted.

As soon as homeowners become aware of a financial hardship that will cause them to miss a mortgage payment, they should begin preparing for how to avoid foreclosure. This might include working with the lender right away, consulting with a Realtor to list the house for sale, and taking the bankruptcy counseling sessions just in case they run out of time. It is better to be prepared for any possibility, since the foreclosure process can often be unpredictable, with various state and local rule variations, as well as the bank's own ability to move forward with the process quickly.

Consumer and civil rights advocates are fighting for legislation to pass in Congress designed to help foreclosure victims save their homes and avoid eviction with the help of the bankruptcy courts. This bill making changes to existing bankruptcy laws and the power of judges is supported by many consumer advocacy groups, such as the Center for American Progress, the American Association of Retired Persons (AARP), the National Association for the Advancement of Colored People (NAACP), and the Service Employees International Union, just to name a few.

The new legislation would allow bankruptcy courts to reduce the debt owed on a homeowner's primary mortgage. This could help balance the 8% decline in the property values in the housing market in the last year. After being turned down by the Senate, controlled and funded by the banking industry and mortgage company interests, these hopeful groups have petitioned the House and are very optimistic of a successful outcome for the proposed legislation.

Currently, a Chapter 13 bankruptcy can be used to stop or delay the foreclosure process, but the courts have never had the ability to eliminate any portion of the debt owed on a first mortgage. A Chapter 13 bankruptcy helps the victim to establish a legal payment plan under the supervision of the courts, where a Chapter 7 eliminates unsecured debt altogether through discharge. As the law stands now, though, a Chapter 7 bankruptcy can not eliminate the debt of a mortgage or other secured credit.

Parties against the new legislation (banks, mortgage companies, and their politically-connected representatives) claim these changes would only raise mortgage rates for everyone across the country and are lobbying against the changes with the slogan “Now is NOT the time to change the bankruptcy law and make things worse for consumers”. Many consumers are feeling the pain of lower home values and higher interest rates and with 20,000 new foreclosure filings every week, many people facing the loss of their homes in coming months would welcome this type of change.

As the housing market continues to worsen, foreclosures will grow and more and more families will need help, either from their lenders, bankruptcy attorneys and courts, and other third part companies. But two of the questions surrounding this proposed change to the bankruptcy law are should the government be obligated to provide foreclosure help and is doing it through the bankruptcy courts the right choice? While the debate is far from over, it seems that a change of this nature would be more welcome to the American people than indiscriminate monetary bailouts made by the Federal Reserve or Congress to the banking system.

One of the more creative plans put forth by legislators as an effort to alleviate pain in the housing market and stop the rising tide of foreclosures has been to alter the bankruptcy code. This would allow bankruptcy court judges to reduce the principal balance on mortgage loans, bringing the amount the homeowners owe more in line with the current market value of the property.

For unsecured debts, such as personal loans and credit cards, as well as some secured loans, like investment property mortgages, judges already have this power. They can reduce the total owed to particular creditors and have the people filing bankruptcy to stop foreclosure pay back a lesser amount.

Ideally, when homeowners file bankruptcy, they will be able to reduce their debts to a more reasonable level, while also making good on the loans they have taken out. While the lenders may not receive all that they had been counting on, they will receive more than they would have if the bankruptcy filers had simply walked away from these debts.

Congress is now trying to extend the power to reduce mortgage balances on primary homes to bankruptcy court judges in an effort to allow them to help homeowners stop foreclosure and establish an affordable payment plan. Of course, there is a lot of opposition from the banking industry, and even the president has stated that the proposed idea will interfere directly in voluntary mortgage contracts.

But on the plus side, homeowners would be more inclined to stay in their home and seek bankruptcy protection if there was a chance their mortgage balance would be reduced. Instead of simply abandoning a home that they owe much more on than the property is worth, they may be able to negotiate down the balance and have an incentive to seek other options to save their homes.

The fact that bankruptcy court judges already have similar powers in other debts is also a positive for the proposal. Reducing the mortgage on an investment property is not very much different than reducing the balance on the primary home, after all.

Possibly the most important reason to support this plan is the speed with which it could be implemented, as opposed to tax breaks, economic stimulus checks, or creating new government agencies. The bankruptcy code could be changed within weeks and judges would instantly have the power to foster negotiations between mortgage companies and homeowners.

The proposal would also have the benefit of costing nothing to the general public, as it does not require more money to be spent through funding more government programs. Plans that involve additional costs to Americans only pushes them further towards the brink of financial ruin, and may cause more foreclosures than they solve; changing bankruptcy laws would not have that negative effect.

There are numerous drawbacks to this plan, though, not the least of which is that mortgage companies would have to increase their costs to borrowers if they knew there was a chance of the mortgage balance being reduced in the future. Interest rates on primary home mortgages are almost guaranteed to rise for all homeowners, which would have the effect of reducing how much people could afford to pay for a home.

Another problem would be that people with mediocre or poor credit, who have experienced financial hardships in the past, would not be able to get a mortgage at any decent rate. The banks may be far too worried about the possibility of bankruptcy and simply refuse to secure mortgages for anyone without pristine credit, locking large segments of the population out of ever becoming homeowners.

The proposal to change the bankruptcy plan may be quite a long-shot, but the developments are worth following as it seems to be the one proposal that involves actually helping homeowners directly. While other plans have involved bailing out the banks, homebuilders, auto companies, and airlines at the expense of foreclosure victims, altering the bankruptcy code may be the most positive plan yet put forward.

Because the plan does have the potential to assist homeowners to stop foreclosure before the bank makes money from the process, there is little chance it will pass in time. But with more than a year and a half left of resetting mortgage rates, legislators may eventually feel they have little choice but to provide some token benefit to the people in the midst of pumping out tax breaks and bailouts to the largest corporations.

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.

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.

One of the options that are recommended for homeowners facing foreclosure is that of filing Chapter 13 bankruptcy. But too many people in foreclosure seem to believe that this option will automatically end the foreclosure and they are not expecting to go back into foreclosure after filing. Unfortunately, the reality is quite different, as the vast majority of people going through this legal process end up back in foreclosure instead of completing the bankruptcy plan.

Chapter 13 bankruptcy will put the foreclosure process on hold through an automatic stay of any collection efforts by creditors, and for this reason it can be remarkably effective. If the homeowners are running out of time before their home is sold at a county auction, or the bank is not willing to work with them to put together a loan modification or other foreclosure solution, bankruptcy can give the owners a chance to come up with a better solution. But filing bankruptcy will not automatically end foreclosure or get the mortgage out of default.

The owners will have to establish a payment plan with the lender through the courts and make the payments on this plan for 3-5 years. This is designed to get them caught back up on their defaulted mortgage and other debts they may be behind on, while reducing the balances on other debts. By the end of the bankruptcy payment plan, the homeowners should be completely paid back to "current" status on their debts and the foreclosure will be ended. If the house loan is not behind, the bank obviously can not sue to take back the property to pay the mortgage.

It is important for homeowners to be aware that many bankruptcy payment plans can be quite expensive, possibly doubling their monthly debt payments. For this reason, bankruptcy may be considered just a short-term band-aid that pushes off the foreclosure or auction for a few extra months. Too many homeowners end up right back in the legal system after filing bankruptcy to stop foreclosure, but now their credit is in even worse condition, and they will not be able to file again to stop a sheriff sale, if needed.

The legal payment plan in bankruptcy is designed to give homeowners the chance to pay back the amounts they have fallen behind, while also making the regular payments on their mortgage and other debts included in the filing. Thus, their total monthly debt payment will almost surely go up quite a bit. If their financial situation has deteriorated to the point that they can not afford to pay more money to get back on top of their defaulted debt, then bankruptcy will not help for long.

Filing bankruptcy to prevent a foreclosure is not a decision that should be undertaken lightly. Although it can be the most effective solution to stop an upcoming sheriff sale or deal with an uncooperative lender, it may be better for homeowners to consider bankruptcy as a short-term bridge to the final goal they would like to accomplish with their home. This may be getting more time to sell the house or paying down some debt to qualify for a hard money loan, but homeowners should carefully consider their ability to complete a legally-mandated payment plan before relying on bankruptcy as the best method to stop foreclosure on their house.

Bankruptcy is often one of the last resorts that homeowners facing foreclosure rely on to get some relief. The social and financial stigmas that come with this method are often enough to scare away many people from filing. However, in the right situation, bankruptcy can be a powerful tool to get a short break from an accelerating foreclosure process and bring the mortgage lender and other creditors back to the negotiating table.

There is also a slight possibility that bankruptcy court judges may be granted more power to work out solutions in favor of homeowners. One proposal floating around Congress to fix the foreclosure crisis involves allowing these judges to reduce the total amount homeowners owe on a mortgage loan. Bankruptcy courts do not currently have this power, and the proposal is a response to the sharp declines in home values that have made some homeowners owe far more than their properties are worth.

Currently, homeowners who file Chapter 13 bankruptcy to stop foreclosure are unable to reduce the amount they owe on the mortgage on their primary residence through the legal process. Second homes, investment properties, or vacation homes are eligible for some additional relief in the form of debt reduction, but the mortgage company is protected on the primary residence. This is mainly what the proposal in Congress is attempting to address.

The bill, though, will not easily pass to become law. Even if the proposal passes with majorities in both Houses of Congress, the president has threatened to veto the bill as interfering with the right of homeowners and mortgage lenders to enter into voluntary contracts. If banks' loans could be altered later on through bankruptcy, they would be more inclined to raise interest rates to collect more money right away. Giving this power to the bankruptcy judges would also make it more difficult for borrowers with poor credit to get a mortgage at all, for fear of having the loan amount reduced.

There is also the very real possibility that, if the proposal looks like it will pass, more lenders will move towards foreclosure more quickly. They will attempt to have the properties sold at sheriff sale and get the property listed on the market as soon as possible, so the homeowners do not even have enough time to consider the possibility of filing bankruptcy. This would cause a bad foreclosure crisis to get even worse in a very short period of time.

There could be numerous benefits to the new laws, if the proposal had the potential to pass, and many homeowners currently deeply underwater in their loans no longer feel as great an incentive just to give up on the house. Negotiating a lower mortgage balance could persuade some of these people to stay in the house and pay a fair price for the right to remain in the home. And not all banks are willing to negotiate mortgage modifications, so the strength of a bankruptcy judge on the side of the homeowners may allow more people to stop foreclosure in the long run.

Unfortunately, it looks as if this one attempt to give the people more power over the banks will fail. And with all of the negative consequences of foreclosure and bankruptcy that will haunt homeowners for years after the fact, the mortgage lenders will continue to hold Americans hostage to expensive mortgages on overvalued properties. Filing bankruptcy to stop foreclosure can be a very welcome last resort for homeowners in danger, but it looks as if they will not be given the chance to negotiate in the courts to work out any better terms for their loans.

For homeowners who file bankruptcy in order to save their homes, there is always a fear of falling behind on the payments and ending up back in foreclosure with their credit scarred even further. But the vast majority of homeowners who do file a Chapter 13 bankruptcy will end up back in foreclosure if they do not work with the right attorney and are not prepared to meet the requirements of the legal payment plan.

The bank, once the homeowners begin missing the mortgage payment, will start to move towards foreclosure, regardless of whether or not the house is included in the bankruptcy filing. The bank's process will not be much different if they are in the Chapter 13 or have not yet filed, seeking other ways to stop foreclosure first. But the details of the bank's pursuit of foreclosure will vary slightly if the house is included in the Chapter 13 or not. That may change how the bank will go about the foreclosure, but not by very much.

If the house is not in the Chapter 13 plan, then the bank will just file the foreclosure lawsuit with the county court, get a sheriff sale date, and attempt to sell the house to pay back the defaulted mortgage. This is pretty much how any bank takes a property from homeowners who are not able to make their payments. The overall structure of how foreclosure works varies from state to state, though, so homeowners should check their state foreclosure laws to find out exactly how long the takes and what options they may have to save the house with or without bankruptcy.

But if the house is included in the Chapter 13, then once the homeowners begin falling behind on payments, the bank will petition the court to have the mortgage dismissed from the bankruptcy plan. This is also known as seeking a release of stay, as the stay is what automatically puts the foreclosure process on hold. If the owners were not making the payments, this would be pretty easy for the bank to accomplish -- the Chapter 13 is designed to give people a chance to make the payments on time and get back on track with missed amounts during the length of the plan. If they fall behind, the creditors can have their debt removed and pursue collection activities again.

In that case, then the mortgage company would begin pursuing the foreclosure process once the automatic stay is released. They still have to follow the state foreclosure laws and county rules in order to take the home. Nothing would change any of that, no matter if the house was ever involved in a bankruptcy or not. Once the house is out of the bankruptcy, the lender will follow the usual process of taking back a property to satisfy a defaulted mortgage.

So, there is just that one extra step of getting the house removed from the bankruptcy payment plan, if the homeowners include the house in their Chapter 13 filing. But in any case of foreclosure, the bank will have to follow the laws that dictate how the foreclosure process will work in a particular state. And to know how much time the homeowners have and what options they may have to stop foreclosure before or after bankruptcy, they can search online for their state foreclosure laws and read about various foreclosure solutions.

One of the more common methods that homeowners use to get out from under a crushing debt burden is by filing bankruptcy. If they are unable to find some alternative, then this may be the only option available, due to a large amount of debt and an inability to pay it back in any reasonable manner. Consumers who are finding it more and more difficult even to make the minimum payments on credit cards or personal loans, and may fall behind on their mortgage if they face a serious financial hardship, may with to consider filing bankruptcy to get some relief.

Getting to this point where the debt is such a large problem that it will be almost impossible ever to pay it off is very often beyond a person's control. The lure of easy credit creates temptations, which then lead to a dependency on credit just to make bill payments or pay the interest on other credit lines. Financial mismanagement and hardships may then combine to push the consumer over the edge. The list of potential hardships is nearly endless, from job loss to illness or disability to divorce and even home or car repairs.

Filing bankruptcy, although an option, should only be considered very carefully and it is not a magic bullet solution. Due to recent changes in the bankruptcy laws, it may be more difficult to meet the requirements to file Chapter 7 bankruptcy and discharge all of the unsecured loans, like credit cards and personal loans. The paperwork that will need to be filed is just as extensive as applying for a repayment plan from the original creditors. Bankruptcy also involves an entirely separate court system that will be involved. Consumers who do not meet all of the requirements under these new laws will simply not be able to have their debts discharged.

Consulting with a competent legal source should be the first step for most people in order to understand these laws. Because of the useless nature of legal language, it is specifically designed to keep out everyone who has not spent tens of thousands of dollars in an approved law school and taken a state-administered exam.

Bankruptcy is usually the last resort for most consumers with credit problems, as well it should be. The credit ramifications of filing bankruptcy can be quite severe, and it will appear on a credit report for seven years. This will make it more difficult to qualify for loans at any rate soon after filing, and will ensure that any creditors will request higher up-front fees or higher interest rates for years to come. Employees seeking a new job or moving up in a company can also be hampered because of bankruptcy, as more employers are now using credit checks to ensure that their workers are trustworthy.

Usually, a better solution is to research other options that will avoid bankruptcy, such as debt validation, consolidation, or simply working with the creditors for a more reasonable payment plan. Lenders can lower interest rates or accept less than the total amount they are owed, but consumers will have to request these solutions and be willing to work with their creditors. The long-term effects of filing bankruptcy often outweigh the relative benefits in all but the most serious cases, such as stopping a sheriff sale or saving a home from foreclosure.

When most people think of bankruptcy, they think of a Chapter 7 Bankruptcy. A Chapter 7 is when the court seizes assets and eliminates the associated debt. This type of bankruptcy can stop foreclosure, but most people want to keep their home. This is where a Chapter 13 bankruptcy can help. A Chapter 13 bankruptcy allows the homeowner to keep their home and establishes a repayment plan with the lender. During the Chapter 13, the homeowner will not have a lot of extra money, but the court will make sure they are left with enough to live on and pay their bills. A Chapter 13 bankruptcy gives the homeowner a chance to get their affairs back in order and the time needed to recover from the hardship.

Bankruptcy has been a somewhat negative topic with homeowners, but bankruptcy was designed to help people through a hardship when they have nowhere else to turn. In my experience, this is exactly the situation foreclosure victims have found themselves in. We have been brought up to believe that we should always pay our debts and to not pay for our debts is shameful. This is one reason people have such a low opinion of bankruptcy and the people who file it. But bankruptcy is a legal option that was established to help those in need. It is not shameful to file a Chapter 13 bankruptcy. It shows that you are responsible for your debts and you will do whatever it takes to pay them.

Another negative aspect of bankruptcy is that it causes a drop in credit score, but when someone is facing foreclosure, their credit score is already very low. In reality, a bankruptcy could improve a foreclosure victim’s credit, or at least speed up the recovery process. The bottom line is: when a man is faced with losing his home and moving his family into the streets, he should embrace the legal system and take full advantage of any assistance it can offer.

A Chapter 13 bankruptcy is not the only option to stop foreclosure, but it is considered one of the top ways to stop foreclosure and it can be considerably less expensive than other alternatives. When compared to other options, such as loan modification, refinance, or forbearance agreements, bankruptcy is easily the fastest and most reliable option when it comes to saving your home from foreclosure.

If you are facing foreclosure then you owe it to yourself and your family to speak with an attorney and discuss the option of bankruptcy. Your initial consultation should always be free and you should never work with an attorney you do not trust, so feel free to meet with several attorneys before you make any decisions. Bankruptcy is not for everyone, but it has helped many families save their homes from foreclosure and gives them the second chance they are desperately looking for.

For most homeowners, bankruptcy is certainly not their first choice to save their home from foreclosure. This is for a very good reason, as the credit effects can be quite serious and its results are generally poor, at best. Many of those who file bankruptcy to get out of foreclosure find themselves right back in the foreclosure process within in months of entering bankruptcy. Putting off losing the home is obviously not the reason most homeowners file, as they will then be stuck with both a bankruptcy and a foreclosure on their credit.

Chapter 7 Bankruptcy

In any event, homeowners facing foreclosure can not include the house in a Chapter 7 bankruptcy. Chapter 7 is only for unsecured debt, such as credit cards, store cards, personal loans, and the like. The mortgage is secured by the property, so it would not be dischargeable under Chapter 7. The clause in the mortgage paperwork that keeps it from being included in a Chapter 7 case is that it states the mortgage loan is secured by the underlying collateral, the property itself. Chapter 7 does not discharge secured debt, so this combination excludes the mortgage and this type of bankruptcy from having anything to do with each other.

Chapter 7 bankruptcy may, however, serve a purpose in freeing up income that the homeowners could use to keep on top of their mortgage payment. Keeping a roof on top of their heads is much more important than financing a new television or furniture, and credit card companies who are unwilling to work with homeowners in financial trouble will have to bear the costs of their poor lending decisions. Discharging most of these types of debts can significantly free up income, which can immediately be used to pay down the arrears on the mortgage or establish a repayment plan or other workout program. Homeowners with a debt-to-income ratio too high will not qualify for these bank workout programs, so discharging some of this high-interest, unsecured debt through Chapter 7 may be a reasonable path to getting the mortgage back on track.

Chapter 13 Bankruptcy

Homeowners who want to file bankruptcy to stop foreclosure can include the house in a Chapter 13 filing, which is a reorganization of the debt with a payment plan mandated by the courts. But if the house is already too expensive, then agreeing to an expensive payment plan would not make a whole lot of sense. In Chapter 13, the mortgage payments might very well go up, because the homeowners have to pay the regular monthly mortgage, as well as a portion of the amount that they are in default. Falling behind on this type of bankruptcy almost always results in the house going back into foreclosure and sold at a county sheriff sale.

Especially if the homeowners fall behind on the Chapter 13 plan, they will be in serious danger of losing the home very quickly. Bankruptcy does not actually stop foreclosure -- it only puts the process on hold and gives the owners protection under the courts to pay back what they have fallen behind. Thus, if the payments are not made as agreed, the bank will request that the courts lift the stay and allow them to proceed with the foreclosure process. And the lender will be able to proceed as if the bankruptcy never occurred, starting up right from where they left off. This can often result in a sheriff sale being scheduled very quickly, within a matter of weeks.

Filing bankruptcy to stop foreclosure is a decision that homeowners need to consider very carefully, and even potentially consult with a lawyer for approved legal advice. The only real way to get rid of the mortgage and no longer worry about the property is find some way to sell the house, give a deed in lieu of foreclosure, or have it be foreclosed on by the bank. The county sheriff sale will eliminate the mortgage liens and transfer ownership of the property. The homeowners will have to deal with a foreclosure on their credit for 7-10 years, though. There are no easy decisions during the foreclosure process, of course, but the possibility of facing foreclosure and bankruptcy on the same house should be avoided.

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.

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.

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.

For homeowners who wish to save their homes from foreclosure, filing bankruptcy to save a home from foreclosure is one of the least-understood methods to prevent foreclosure. It can, though, be used as one last option to end the process, instead of losing the home. While there are negative effects to filing bankruptcy which need to be considered, the potential uses of this solution to foreclosure can far outweigh the financial and credit consequences, especially if the homeowners are running short on time.

The main reason that homeowners file bankruptcy to stop foreclosure is so that they can get their payments back on track through a repayment plan. This court-ordered plan can be quite expensive for foreclosure victims, though, unless they have recovered to a financially stable situation and are able to pay more than their usual mortgage payment. On completion of the repayment plan, the homeowners will see their payment go back down to normal, and the foreclosure will have ended with the loan now current.

When there is not much time to put together a solution that will stop the foreclosure process, filing bankruptcy is often used just to put everything on hold and prevent any further foreclosure proceedings. Especially if the family is down to the last minute, and the foreclosure auction is days away and the bank will not postpone it, filing a Chapter 13 can stop the sale immediately and put the entire foreclosure process on hold. In the most desperate cases, this may be the only method available to gain the extra time necessary for the homeowners to put together a more adequate solution to save their homes.

As with all options to avoid foreclosure, bankruptcy should be considered in context. This means that other options may be more appropriate, but bankruptcy also should not be ruled out. There are numerous ways to save a home, all of which should be examined before homeowners make a decision of whether to hire an attorney and file bankruptcy or not. The reasons leading homeowners into foreclosure are often unique, and the methods used to end the process need to be carefully considered before being applied to a situation.

Moreover, homeowners often find out very quickly that filing bankruptcy is more difficult than they originally thought, and may not help them stop foreclosure for long. If they have not recovered from the hardship that caused them to miss mortgage payments, they will not be able to afford the repayment plan, and will find themselves facing foreclosure again. An unrealistic bankruptcy plan that can not be paid for longer than a few months will not result in the homeowners keeping their homes for the long term, as the bank will try to have the bankruptcy dismissed.

One of the more dangerous aspects of bankruptcy is if the homeowners find out that their trust has been misplaced in the attorney they hire. Stories of foreclosure victims being taken advantage of are plentiful, with attorneys taking filing fees but never filing the necessary paperwork or recommending the homeowners switch from Chapter 7 to Chapter 13 and back again numerous times. This will result in the homeowners being unable to file the bankruptcy in time to save the home, or having an attorney who charges numerous filing fees that are not in the interest of the foreclosure victims. Although most attorneys stay away from illegal activities such as these, homeowners need to be on the lookout for any chance that their bankruptcy lawyer is not acting in their best interests.

Filing bankruptcy to stop foreclosure is one of the most important decisions homeowners will make when dealing with the potential loss of their homes. However, this option can provide the last chance to many foreclosure victims to stop the process and have additional time to work out a long-term solution. Regardless of the potential scams, financial and credit ramifications, and legal complexity of filing bankruptcy, homeowners should learn as much as they can about this technique, in case they need to rely on it at the last minute. While it may not be a final solution to foreclosure, it can provide the bridge needed to help homeowners work out a better option to keep their homes and avoid foreclosure.

Filing bankruptcy to stop a foreclosure is a little-understood method for homeowners who wish to save their homes. However, it can be used as one of the last options before losing the home to foreclosure. Most homeowners are aware of the negative aspects of filing bankruptcy and these need to be considered, especially if the foreclosure victims wish to continue using credit and keep a high score. The uses of filing bankruptcy in a foreclosure situation, though, can outweigh the negative aspects in certain cases.

Bankruptcy's main benefit is the ability to set up a workout program that allows the homeowners to get their various payments back on track. Although the plan is typically quite expensive, homeowners in a stable financial situation may have the ability to pay extra every month to get the mortgage current again. Once the bankruptcy payment plan is completed, the foreclosure victims can begin making regular payments again, without the threat of the bank taking away their home and suing them for foreclosure again. The homeowners will be completely caught up and their payment will return to the regular amount due every month. The bankruptcy will also be dismissed at this point.

When homeowners are in the middle of a foreclosure, filing bankruptcy will immediately put the entire process on hold, which is vital when there is little time and the situation is getting beyond what the homeowners can handle any longer. If a sheriff sale is soon approaching, and they are unable to postpone the auction, filing a Chapter 13 will stop the sale quickly, and put any other court procedures on hold. For many foreclosure victims, this may be the only reason to consider filing bankruptcy, but it will allow them the extra time that they need to put together a longer-term solution to the foreclosure.

Also, bankruptcy should be considered a last line of defense for homeowners in foreclosure, and not as their main option to avoid foreclosure. Homeowners often have many solutions available to help them save their homes, and hiring an attorney to pursue a bankruptcy filing is certainly not the best solution in every foreclosure case. The very nature of foreclosure ensures that each situation is unique, and homeowners need to consider very carefully which options may help them save their homes.

Furthermore, homeowners often discover that bankruptcy is more complex and expensive than anticipated, and may not result in them being able to save their homes. If the financial outlook has not significantly improved and the homeowners can not afford the plan, then the bankruptcy will only be a short-term solution, at best, and may lead them right back to foreclosure. A repayment plan that is unmanageable for more than a few months will not help foreclosure victims in the longer term because the bankruptcy will be dismissed and they will be put back into foreclosure if they miss a payment. Once a payment is missed, the bank will ask that the bankruptcy be dismissed, and the foreclosure process will begin from where it left off when the homeowners originally filed the bankruptcy.

Another drawback of considering bankruptcy can be if the homeowners end up working with an unscrupulous attorney who takes advantage of them. There are numerous stories and experiences of foreclosure victims paying to hire a lawyer who simply disappears with the money that was supposed to be used to file bankruptcy, or attorneys who continually recommend debtors switch between a Chapter 7 and a Chapter 13 bankruptcy. These actions can result in the homeowners losing the home, despite their best efforts to save it, or having to pay numerous filing fees every time the filing is switched. Although there are many more law-abiding attorneys than bad ones, homeowners need to be aware of the chances of being taken advantage of, and that doing research on their own will help protect them.

Working with a well-respected attorney, homeowners can put together one more option in their plan to avoid foreclosure and save their homes, even if it is just a last chance effort. Once homeowners understand the credit ramifications of filing bankruptcy, and know to be aware of potential scams, they should consider this as one solution, if not the best solution. Despite its drawbacks, potential pitfalls, and legal complexity, filing bankruptcy to avoid foreclosure may give foreclosure victims the one last option necessary to put the foreclosure on hold and work out a long-term solution to keep their homes.

In the recent real estate boom of the last few years, many homeowners applied for and received second mortgages. These may have been in the form of Home Equity Lines of Credit (HELOCs) or as a 20% down payment loan for an 80/20 mortgage. When the house begins to go into foreclosure as the homeowners default on the first mortgage, though, there are different courses of action that the mortgage company can take, and foreclosure victims will have a number of options to solve the problem. But homeowners will need accurate foreclosure advice when they are facing the possibility of both mortgages going into foreclosure. This may seem like one of the few times when bankruptcy to stop foreclosure is a good idea to save the home and preserve some of the homeowners' credit, if they can avoid two separate foreclosures.

In most cases, the second mortgage will either file foreclosure, or they will desperately try to work with the homeowners to stop foreclosure altogether. When the mortgage company files foreclosure, it is to protect their interest in the property and start accelerating their own fees and interest, so that they can grab a piece of the proceeds from the sheriff sale. However, they will do this only if they are expecting the property to sell for enough to pay off the first mortgage and second mortgage. In a foreclosure auction, the proceeds are used to pay off any property taxes first, then the first mortgage, and then any other liens (second mortgages, judgment liens, etc.) in the order in which they were filed with the county. Thus, if there are no expected proceeds to pay off the second mortgage, there is little reason for the lender to attempt to foreclosure on the house.

Thus, this rarely happens, since the proceeds from sheriff sales typically do not pay off the first mortgage in full, let alone any of the second. In this case, the second mortgage company will work with the foreclosure victims and may be willing to accept less as a payoff in order to help them sell the property at a short sale (for less than the total amount owed). The lender knows they will most likely get nothing from the foreclosure auction, so it is worthwhile for them to accept anything for the loan, instead of lose everything. Second mortgage companies have been known to take as little as 10% of the total owed, because this is 10% more than they would receive at the foreclosure auction.

Even though there may be little danger in facing two foreclosures at once, homeowners are often advised to file bankruptcy to prevent this possibility. They would be able to establish a repayment plan that includes both loans and be given protection under the law in order to pay back the arrears. However, as noted above, the second mortgage may be much more willing to work with the homeowners to come to a solution that allows them to keep the home, even if the lender has to accept less as a total payoff, or give the foreclosure victims more time to get back on track with the monthly payments. Filing bankruptcy will not allow the homeowners to work directly with the mortgage companies, and may eliminate some of their options to negotiate with the second mortgage holder.

In terms of what bankruptcy can actually be used for, it can be a good option to stop the foreclosure process if the homeowners are out of time before the sheriff sale. Filing bankruptcy immediately puts the foreclosure process on hold, stopping the auction in its tracks. The repayment plan is usually quite expensive, though, and the homeowners will not have any extra income with which to save an emergency fund, or pay for any other financial setbacks that come along. All discretionary income must be applied to the debts that are included in the bankruptcy. For these reasons, foreclosure victims are typically better off looking at other options to stop foreclosure, before considering bankruptcy. A short sale or forbearance agreement with the first mortgage may get them back on track without the negative credit affects of having a bankruptcy and a foreclosure.

It is important for homeowners to do some research on what options they have available, besides bankruptcy, and try working with both lenders for a solution. Mortgage companies would like to avoid both bankruptcy and foreclosure, if there is a solution that will allow for that outcome. They may even be willing to postpone the sheriff sale or accept a short sale, rather than go through a lengthy legal process in the courts. Both of them are more interested in getting their money, not on foreclosing on the house, taking a loss on the mortgage, and having to sell a property in a depressed real estate market. It is in all of the mortgage companies' interests to find a solution to foreclosure.

Bankruptcy to stop foreclosure is possibly the least-understood and least-desired option for most homeowners, although it can provide them with the last chance they need to be able to save their homes. The drawbacks to bankruptcy are widely discussed and raise serious concerns for foreclosure victims who want to preserve as much of their credit as possible, but this option can also provide homeowners with a last chance that is not present in other solutions to foreclosure.

Bankruptcy can be used to set up a repayment plan that allows the homeowners to repair their credit and get back on track with their debts. Although it is usually an expensive payment plan, homeowners who have repaired their financial situations may be willing to pay more every month to fulfill their mortgage obligations. And once the bankruptcy is completed, homeowners can go back to paying their regular monthly payment without the threat of foreclosure hanging over their heads any longer.

In foreclosure situations, filing bankruptcy will put the entire foreclosure process on hold, which is very important for homeowners when the situation is getting out of control and they are running out of options at the last minutes. When a foreclosure auction is approaching, and there is no other way to stop the sheriff sale, filing bankruptcy will immediately put everything on hold, including putting off the sale of the property. In certain situations, this is the most important aspect of bankruptcy, as it just allows the homeowners to gain a little more time to put together or complete a more reasonable plan to save their homes.

However, there are also valid reasons why homeowners may want to consider bankruptcy to stop foreclosure as a last resort, rather than as their first line of defense. There are numerous methods that are available to stop foreclosure, and working with an attorney to file bankruptcy may not be the most appropriate solution in every case. Foreclosure situations are always unique, and deserve a serious evaluation to determine the best way to save the home.

Filing bankruptcy can be a complex process that is expensive and may not bring about the desired results, in addition to harming the homeowners' credit. When the homeowners' finances have not sufficiently improved to the point of being able to afford the repayment plan, the bankruptcy is doomed to failure from the very beginning. Foreclosure victims should not agree to a repayment plan that they know will be unmanageable in the long run, because missing a payment in bankruptcy means that the foreclosure process will start back up.

There is also the possibility of running across an unscrupulous bankruptcy attorney who does not act in the best interest of the foreclosure victims. Horror stories abound of homeowners who paid for the bankruptcy to be filed and the attorney simply did nothing with it, resulting in the loss of the home to foreclosure. Other attorneys have been known to advise clients to continually switch from a Chapter 13 to a Chapter 7 and back and forth over and over again, in an effort to have the clients pay substantially more in fees for each new filing. Although the vast majority of attorneys will act in the best interests of their clients, it is important that homeowners be aware of potential scams, even among bankruptcy lawyers.

Thus, bankruptcy is a solution to foreclosure that most homeowners should examine with a reputable attorney, even if it is just to have a last-ditch effort to stop foreclosure on their homes. Foreclosure victims need to be aware of the implications of filing bankruptcy, and do their best to avoid being taken advantage of by a scam, but this option should not be ruled out entirely. Despite its complexity, drawbacks, and potential pitfalls, filing bankruptcy to stop foreclosure may give homeowners that one last chance to put the foreclosure process on hold for just long enough to find a more reasonable solution.