Chapter 13 bankruptcy will promptly stop a foreclosure, including any sheriff sale, as soon as the court receives the necessary paperwork. The automatic stay takes effect immediately upon filing and remains in effect for as long as the case is pending. There is no ideal time to file Chapter 13 bankruptcy, and the longer homeowners delay to file, the more it will cost them to emerge from bankruptcy and the more likely it is that they will fail the legal payment plan and have their case dismissed.
Once a mortgage payment is missed, lenders almost immediately begin charging late fees and accruing additional interest, making it more expensive for homeowners to get back on track. The longer this continues, the further debtors fall behind; even if they have missed only a few payments, the total amount required to reinstate the loan may be the equivalent of many more monthly payments. This large financial burden can make it more difficult for householders to repay all arrears through a Chapter 13 bankruptcy payment plan, and increases the likelihood of failing the plan and having the case dismissed.
Before filing for bankruptcy, the majority of homeowners attempt a variety of alternatives to stop foreclosure. Refinancing through a foreclosure lender or negotiating a mortgage modification or forbearance agreement with the lender may be simpler and cause less harm to the homeowners' credit histories. In fact, bankruptcy is frequently recommended and used as a last resort to halt a sheriff sale or put the process on pause due to the imminent loss of a home when all other options have failed.
However, with the 2005 implementation of new bankruptcy rules, householders should prepare as soon as possible for the possibility of having to file as an emergency, even if they never need to file. The new rules require bankruptcy counseling as a prerequisite for even beginning the court process, so homeowners will not be able to file bankruptcy as a last ditch effort a few hours before their home is auctioned off by the county -- they must submit proof of completing the counseling with their bankruptcy petition or it may be rejected.
As soon as householders realize that a financial hardship will cause them to miss a mortgage payment, they should initiate preparations to avoid foreclosure. This may involve working with the lender immediately, consulting with a real estate agent to advertise the home for sale, and attending bankruptcy counseling sessions in case time runs out. It is preferable to be prepared for any eventuality, as the foreclosure process is frequently unpredictable due to varying state and local rules, as well as the bank's ability to move the process along swiftly.
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