Even if you can’t realistically expect to keep your house, you don’t necessarily have to give it up right now. Filing for Chapter 13 bankruptcy can buy you more time—probably at least six months—before the house is sold in foreclosure.
For starters, filing for Chapter 13 will bring foreclosure proceedings to an immediate halt. Your lender can still ask the court to let it proceed with the foreclosure, but the judge probably won’t consent if there is any chance at all you can propose a plan to keep your house.
If you propose a feasible repayment plan, you can delay foreclosure for a minimum of three months, and possibly longer if the judge approves your plan or at least gives you a chance to amend it. If the court doesn’t approve your Chapter 13 repayment plan, and you convert to Chapter 7 bankruptcy, you’ll likely have another two or three months before the foreclosure sale will be allowed to proceed.
I see nothing wrong with filing under Chapter 13 if you are able to propose a feasible plan and by filing for bankruptcy you can stay in your house a while longer. If real estate values come back up and your income situation improves, you may be able to keep the house after all.
Don’t file for bankruptcy unless you can do so in good faith. Because Chapter 13 provides such an excellent opportunity for hanging up a foreclosure action, it has become a favorite means to that end. Some people file, keep the case alive as long as possible, file again as soon as it’s dismissed, and so on. This can land you in big trouble down the line.
Merely filing a case puts the automatic stay into effect, without any review of your filing history by the judge, so it takes a while for the court to spot you as a bad-faith filer. But when it finally does, it can ban you from further filings—and refer you to the U.S. Attorney for a perjury prosecution if you made any significant misstatements in your paperwork.