Many people wonder if filing for bankruptcy will prevent foreclosure on their homes. When you file for bankruptcy, it’s important to ask your bankruptcy attorney to explain all possible ramifications of that action. This prevents unpleasant surprises and helps you to better plan for the future. While banks will often delay foreclosing on a home while your bankruptcy proceeds, they can indeed proceed with foreclosure at any time.
There are two basic ways in which the bank can reclaim your property:
With a “deed in lieu of foreclosure”, you sign over the deed and all interest in the property to the lender. This can be slightly better for your credit than a foreclosure, but not all banks give you the option to proceed in this way.
With an actual foreclosure, the bank may proceed with a judicial or non-judicial process. With the judicial process, the lender has to go through a court process in order to reclaim the property. In the non-judicial process, the bank can take possession of the property and sell it at auction after proceeding through a specific foreclosure process set forth by the state.
Unfortunately, filing for bankruptcy does not mean you can stop paying for the home and keep it. Many banks will wait until your bankruptcy is complete before starting or continuing with the foreclosure process, so while bankruptcy may play a role in delaying the inevitable, it does not prevent foreclosure altogether.
Until the home is legally possessed by the bank, you still own it. TO THE SURPRISE OF MANY UNDERWATER HOMEOWNERS, EVEN A SURRENDER IN BANKRUPTCY CANNOT FORCE THE BANK TO RETAKE POSSESSION OF THE HOME. In many cases it is wise to use this time, if you are not still making payments to the bank, to save cash for your eventual move to another residence. It will probably be difficult to purchase a new home for two to three years, and sometimes longer, due to the impact the foreclosure will have on your credit rating. You can, however, bounce back from this unfortunate situation. Talk to your bankruptcy attorney to be sure you have reasonable expectations for the future.
BY: R. TODD FRAHM, ATTORNEY AT LAW