If you’ve fallen behind on your mortgage payments and find yourself facing imminent foreclosure, it may still be possible to save your home. And if saving your home is no longer an option, there are several strategies that can help delay the foreclosure process and possibly offer a more favorable foreclosure outcome.
If your foreclosure sale is scheduled to take place in a matter of days, you can stop the foreclosure in its tracks by filing for bankruptcy. Upon your filing, the court will issue an order containing something called an automatic stay, which immediately puts your foreclosure on hold during the bankruptcy process, which generally lasts around three or four months. The lender may try to get around the automatic stay by filing a motion to lift the stay and asking permission from the court to continue with the foreclosure proceeding. But even if the lender’s motion is granted, the foreclosure will still probably be delayed for at least one or two months, during which you can continue negotiating a foreclosure alternative with your lender.
If you are already in foreclosure and want to save your home, you may be able to do so by filing Chapter 13 bankruptcy. If you can no longer make your mortgage payments and keeping your home isn’t an option, Chapter 7 bankruptcy may still be able to help you make the most of your foreclosure.
To learn the basics of how bankruptcy can help, see our section on Foreclosure and Bankruptcy.
Chapter 13 can help you save your home because it will reduce the amount of debt you will have to repay, thus freeing up your money to put towards paying your mortgage. Under Chapter 13 bankruptcy, you will be required to propose a repayment plan. You plan must show that your predicted future income will be sufficient to cover your basic living expenses (including your monthly mortgage payment and payments towards your missed mortgage payments) along with a few other specific debts (such as outstanding taxes and child support). If the court approves your repayment plan, and you are able to stick to the plan for the required three to five years, then your remaining unsecured debt will be discharged and you will be able to retain your home. For more on the benefits of filing Chapter 13 bankruptcy while in foreclosure, see our article on Chapter 13 Bankruptcy, Mortgages and Foreclosure.
Although you won’t be able to save your home if you’re already in foreclosure, filing Chapter 7 bankruptcy can still provide benefits. Perhaps the biggest benefit is the delay in foreclosure proceedings, which will allow you more time in your home and give you the opportunity to save money (because you won’t be making any mortgage or rental payments during the delay) and to negotiate foreclosure alternatives with your lender. Chapter 7 bankruptcy will also eliminate your personal liability for your mortgage debt; you will still lose your home, but you won’t be liable for any deficiency remaining after the foreclosure. To learn more about Chapter 7 bankruptcy and find out whether you are eligible to file Chapter 7 bankruptcy, see this article on Your Home in Chapter 7 Bankruptcy.
Filing for bankruptcy is a serious step and should be carefully considered. Most significantly, a bankruptcy filing can result in the loss of other valuable property (particularly in connection with a Chapter 7 bankruptcy) and will damage your credit score. Keep in mind, however, that foreclosure will also damage your credit score, and the benefits of filing bankruptcy (the discharge of your mortgage and unsecured debts) may outweigh any hit you may experience to your credit.
If your state required your lender to sue you in order to foreclose, by the time of your scheduled foreclosure sale, you technically already had your day in court. However, if you live in a state that allows nonjudicial foreclosures (foreclosures that are not required to go through the court), then you may be able to slow or stop your foreclosure by challenging your foreclosure in court. You will have the burden of proof because you will be the plaintiff challenging the foreclosure. To succeed in your lawsuit against your lender, you will need to prove to the satisfaction of the court that the foreclosure should not take place because, for example, the party foreclosing is not the party that owns the mortgage note, the lender didn’t take all of the legally required steps in the foreclosure process, or the lender made some other serious error.
The downside to suing your lender is that a lawsuit can be very costly. Without sufficient evidence to prove your allegations against your lender, your lawsuit will serve only to delay rather than prevent your foreclosure. But even a delay to your foreclosure may be enough of an incentive for your lender to reach a settlement with you. You'll need advice from an attorney if you want to file a lawsuit against your lender.