Before filing the actual documentation with the courts, all homeowners who are contemplating bankruptcy to save their homes should first consult an attorney. Having competent legal representation ensures that the process is followed legally and that foreclosure victims are adequately represented before the court and their creditors. In fact, consulting with an attorney about bankruptcy and other legal options should be one of the first steps homeowners take in a foreclosure situation, regardless of whether they are currently seriously contemplating filing. It is much more essential to have the plan as a backup and not need it than to need it and not have enough time to implement it. When the lender hires attorneys to sue the homeowners for the house, it is in the best interest of every homeowner to seek legal counsel to help them comprehend the situation and their rights under state foreclosure laws.
Naturally, as we have repeatedly recommended, homeowners should conduct their own research prior to interviewing potential attorneys so that they comprehend how the process will work and are much less likely to be taken advantage of by an unscrupulous attorney. Homeowners must have a fundamental comprehension of the foreclosure process and what is involved in filing bankruptcy to stop foreclosure in order to maintain control of their homes and the methods used to stop the foreclosure. Without a basic comprehension of how foreclosure works and how bankruptcy affects the process, they should never blindly trust anyone, including an attorney, mortgage broker, or foreclosure specialist.
Possibly the most significant factor in deciding whether to file for bankruptcy is the cost of the repayment plan. During a Chapter 13 involving a property and all mortgage loans, the homeowners will be required to pay both the court-ordered plan and the regular monthly payments. This may be too much for homeowners who are not yet financially stable, and they will be at risk of falling behind again. If they fail to make a payment during a Chapter 13 bankruptcy, the lender may petition the court to dismiss the case and proceed with the foreclosure as if the bankruptcy never occurred. The bank simply resumes where it left off prior to the filing of Chapter 13, and the homeowners cannot rely on this option to save their home in the future.
Another important consideration is the amount of income that would be made available if the homeowners retained their home and filed Chapter 7 instead. This would eliminate some of their unsecured debts, such as credit cards and personal loans, and could place enough money back into their monthly budget to allow them to resume mortgage payments. Consider how much money would actually be made available and whether the mortgage company would approve a repayment plan in which the homeowners pay extra each month until they are caught up. Depending on the circumstances, this may be the optimal solution for all parties involved.
Obviously, one of the greatest benefits of declaring bankruptcy is that it allows homeowners to halt the entire foreclosure process. The law permits them to take a vacation while they seek court protection and devise a payment plan to get back on track. Even if only a few days or weeks remain before the auction, filing for bankruptcy promptly halts the process and halts the sheriff sale. In this situation, the homeowners may be able to begin working on an alternative solution to the issue while they are granted additional time under the bankruptcy plan.
In the majority of situations involving failed mortgage payments, bankruptcy should not be relied upon to prevent foreclosure. Particularly if the homeowner's income has not recovered from the hardship that led to the foreclosure, bankruptcy can result in an unachievable and prohibitively expensive payment plan. Depending on the circumstances, other options, such as refinancing, selling, or returning the property to the bank, should be considered both before and after filing. During any phase of the foreclosure process, but particularly when contemplating bankruptcy to halt a sheriff sale or save their homes, it is crucial for homeowners to seek out competent legal counsel.
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