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Should You File?

I don’t recommend filing for Chapter 7 bankruptcy solely to delay foreclosure. But if a foreclosure sale looms, you may need some time to complete negotiations with your mortgage servicer, try another tactic to keep your home (see Ch. 4), or find an attorney to help you with a Chapter 13 bankruptcy (see Ch. 5). And because you may have other significant liabilities—such as credit card debt and the full amount of any second or third mortgage you have on the house—bankruptcy may be crucial in getting a fresh start. (See “How Chapter 7 Bankruptcy Helps You” and “Eliminating Payments on a Second or Third Mortgage,” above.)

Don’t, however, file for bankruptcy if your main reason is to buy some time for a short sale. (A short sale is one that yields less than you owe on the house.) There is not much reason for the short sale if you have to file for bankruptcy to get it done, because a big reason to do a short sale is to come out of the situation with marginally better credit than with a bankruptcy. (See Ch. 8 for more on short sales.)