Bankruptcy And Foreclosures: Should You File Bankruptcy To Stop Foreclosure

As home foreclosures continue to rise, more homeowners are taking drastic action to hang on to their homes

. One of the things many are turning to is bankruptcy. According to the CNN Money article, "Bankruptcies Spike 33%", The total number of bankruptcies filed in the third quarter surged 33% in 2009 and is at the highest level since 2005.

The article goes on to note that the surge in filings can be attributed to the weak economy. Drawing a direct line, the weak economy has caused unemployment -- currently at 10 percent -- to be at its highest in 26 years. And, this has led to a lot of foreclosures.

Now that it's understood why so many are driven to bankruptcy, let's answer the question "Will filing bankruptcy prevent foreclosure?"

There answer is yes . . . and no. Why/how? In order to gain a clearer understanding, let's examine what happens when a homeowner files bankruptcy in hopes of preventing foreclosure.

There are two types that most file: Chapter 7 and Chapter 13.

Which type you file will depend on a host of factors like your debt load, assets, your ability to repay or not, your jurisdiction, etc.

Filing Bankruptcy to Stop Foreclosure: The Process

When you file bankruptcy, an "automatic stay" goes into effect. What this does is prevent your creditors from moving ahead with any collection efforts -- for the moment at least. In order for a creditor to get around this "stay," they have to petition the bankruptcy court to lift it.

And they can be successful, causing you to lose your home. Read on for how.

How You Can Still Lose Your Home Even If You File for Bankruptcy

Consider this: Let's say your house is about to be sold on the courthouse steps. So, you file bankruptcy to prevent this from happening.

Your mortgage holder will petition the court to lift the stay. And they are likely to get it lifted if you can't pay the arrears, you don't have any equity in the house and your finances bear out the fact that you really can't afford the monthly payments.

The reason is, creditors have a right to sell any of your assets in order to collect a debt you owe them. And in this case, the asset happens to be your home.

Stopping Foreclosure: The Biggest Mistake Most Homeowners Make

Particularly these days, many options are available for homeowners to prevent foreclosure. One of the biggest mistakes many make though is waiting too long to contact their lender. Even when you file bankruptcy in hopes of stopping foreclosure, you are still going to have to work out a payment plan with your lender.

The bottom line on filing bankruptcy to prevent foreclosure is this: if your financial situation is temporary and you just need some time to get back on your feet, you probably shouldn't file.

Before making a final decision, consult a qualified bankruptcy attorney in your jurisdiction. They will be able to help you decide if filing bankruptcy will help you stop foreclosure.

by: Yuwanda Black

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