What Happens During Foreclosure, Eviction & Bankruptcy

Ideally, you won't wait until your home has already been foreclosed upon to file for bankruptcy. Filing for bankruptcy as soon as you realize that you've fallen behind on your mortgage will give you more opportunities to avoid foreclosure in the first place—often through negotiations with the bank to refinance.

But, what happens if you didn't know that? What if you were so far behind on your mortgage payments that the sheriff's sale started before you ever got your bankruptcy petition together? What if the mortgage was simply so far over your head due to your change in financial circumstances that you simply can't afford to keep the house?

Here's what you can expect to happen, and what you can do to buy yourself some time to get on a better financial footing using bankruptcy as the tool it is meant to be:

After the Foreclosure 

One the house has been foreclosed upon by the bank, the bank will go through the steps of offering it for sale to the highest bidder. The new owner will, quite naturally, want you to vacate the premises as quickly as possible. Each state has its own rules regarding the eviction process, so make sure that you look at all notices you receive and understand exactly what they mean for you.

Ultimately, the new owner will probably have to file something known as an unlawful detainer action—unless you come to a private agreement. Some property investors will offer the prior homeowner of a foreclosure property cash in exchange for the keys (and a quick exit from the property) to avoid the more expensive (and lengthy) process of going through court. 

If you're offered cash for your keys, it may be a viable solution to your problems. It can give you enough to move and get into another place, without having an unlawful detainer judgment on your record (which could make it harder for you to find a new place to rent).

Once the Eviction Starts

Once the unlawful detainer action has been filed, make no mistake: you are under serious threat of an abrupt eviction. The only way to delay the process is to immediately file for bankruptcy. Once your bankruptcy is filed, an automatic stay will be issued that will prohibit the new owner from proceeding with the eviction without the bankruptcy trustee's approval.

It's important to understand that this is a very temporary measure—and it merely buys you time to get the money together to move and get into a new place. However, it also has another benefit: should your house sell for less than the mortgage due (which is likely), you can include the remainder of the mortgage in your bankruptcy petition so that you aren't saddled with that debt going forward.

Bankruptcy law can be tremendously complicated and these are just some of the possible situations that may need to be addressed. For more information, talk to a bankruptcy lawyer today about your options.