Can Filing for Bankruptcy Save My Home?

By Karen Lawson
Mortgage Credit Problems Columnist

If your mortgage goes into foreclosure, your lender will file legal papers that become a matter of public record. This can lead to solicitations by attorneys specializing in bankruptcy law. They may encourage you to file bankruptcy to "avoid foreclosure." Although it's possible to delay foreclosure, your mortgage is secured by your home. Federal law allows mortgage lenders to take possession of your home if you can't meet the terms of your mortgage documents.

Deciding to File Bankruptcy

People typically file bankruptcy when they're facing wage garnishments, lawsuits, and constant phone calls from creditors. Bankruptcy is a legal process that restructures, reduces, or eliminates consumer debt for those who cannot make their payments. Although you have a legal right to file bankruptcy, it impacts your ability to get credit, find a job, or qualify for inexpensive insurance! Also, secured creditors (mortgage companies and auto finance companies) are generally allowed to complete home foreclosure or repossess your car after the bankruptcy court has reviewed your debts and assets.

Bankruptcy and Foreclosure: Now and Later

If you're about to lose your home through foreclosure, filing bankruptcy can seem tempting. As soon as you file bankruptcy, your lender will suspend foreclosure proceedings temporarily. Your lender's attorneys will then show the court that your lender has a "security interest" in your home. The bankruptcy court will likely allow your lender to continue foreclosure.

Although you may keep your home for a few months more, the consequences of bankruptcies and home foreclosures can cause long term financial hardship. Legal proceedings such as bankruptcy and foreclosure remain on your credit history for ten years. Although it may be possible to get credit within that time, it will likely cost more in interest rates and additional charges. It is possible to qualify for a mortgage loan right after your bankruptcy has been discharged or your property seized, however, the terms are usually so unfavorable that few borrowers actually obtain one. The increasing use of credit reporting and scoring by employers, insurance companies, and other entities can reduce your options if you have a foreclosure and/or bankruptcy on your credit record.  Before filing bankruptcy, there are a few things to consider:

• Your mortgage lender may have programs for avoiding foreclosure.
• Bankruptcy filing(s) stay on your credit record for ten years.
• Employers, financial providers, and insurance companies often consider your credit record when making decisions.
• Bankruptcy doesn't typically allow you to avoid foreclosure indefinitely.

If you've already filed bankruptcy or lost your home to foreclosure, you can gradually rebuild your credit and may even qualify for a new home loan in as little as two years after your bankruptcy is discharged / completed.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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