Image: Home Foreclosure © fotog,Jupiterimages

Related topics: bankruptcy, foreclosure, debt, financial planning, Liz Weston

You can't afford the payments on your home. Your efforts to get your mortgage modified are going nowhere. You may even have tried to sell the home for less than what you owe, but the short sale fell through.

Now you face some grim options.

You can let the home slide into foreclosure, or you can try to prevent or at least delay the foreclosure with a bankruptcy filing.

Here's what you need to know to make the right decision:

Foreclosure takes a while. The amount of time between your first missed payment and the sheriff arriving to throw you out varies considerably by state, lender and even market conditions, but foreclosure doesn't happen overnight.

Liz Weston

Liz Weston

Although a lender can start foreclosure proceedings after a single missed payment, most wait until three or more monthly payments have been skipped. How long the process takes after that varies widely; some Southern states give lenders the power to oust borrowers from their homes in a matter of weeks, while in other areas foreclosures are now dragging on for 12 months or more, said attorney Stephen Elias, the author of "The Foreclosure Survival Guide" (also available for free on self-help legal publisher Nolo's website).

In general, foreclosures move faster in states that don't require lenders to go to court to get the process started ("nonjudicial" foreclosures) than in states that do ("judicial" foreclosures). To see which applies in your state, visit Nolo's "How foreclosure works" page.

Bankruptcy slows but often doesn't halt the foreclosure process. As soon as you file for bankruptcy, creditors must stop collection efforts. Your mortgage lender can ask that the so-called automatic stay be lifted so it can proceed with foreclosure, but the amount of time you typically have before the foreclosure process recommences varies by the type of bankruptcy you file:

  • A Chapter 13 repayment plan requires you to pay back at least some of your debts over five years.
  • A Chapter 7 liquidation erases most of your consumer debt in a few months.

"With a Chapter 7, you usually get two months" of breathing room from the foreclosure process, Elias said. "With Chapter 13, it's usually six months."

That is, unless you can demonstrate you're able to pay back what you owe. In that case:

Chapter 13 can help you catch up. If your financial setback was temporary and you now have the money to make your mortgage payments and get caught up on the payments you missed, a Chapter 13 bankruptcy can save your home.

A Chapter 13 also can help you get rid of second and third mortgages, including home equity loans and lines of credit, if you no longer have the equity to secure those loans.

Unfortunately, few people are in a position to get caught up on their mortgages, Elias warns. Many who fall behind do so because their payments are too big or their income has dropped. They still can't afford their primary home loan payments, let alone pay back the arrears they owe, even if the extra payments are stretched out over five years.

Another problem with Chapter 13: It's expensive. Attorneys typically charge $3,000 and up to handle a repayment plan bankruptcy, which is about twice the going rate for the simpler Chapter 7 filing.