How to Keep Your Home and Avoid Bankruptcy Pitfalls

Bankruptcy is supposed to offer families who have fallen behind on their bills one last chance to save their homes from foreclosure. Filing a petition under Chapter 13 of the Bankruptcy Code allows them to reorganize their debt that is past due and repay creditors over a period of three to five years.

Unfortunately, many homeowners that take this route make all the payments under their plan, only to be hit with hundreds or thousands of dollars in additional fees once they emerge from bankruptcy. Unable to meet this additional and unforeseen burden, some find themselves facing foreclosure right after bankruptcy or needing to file for bankruptcy again.

That's what Katherine Porter, an associate professor at the University of Iowa College of Law, found in a study of 1700 bankruptcy cases filed in 2006. She told a U.S. Senate panel earlier this month that banks "routinely disobey bankruptcy law and attempt to collect thousands more dollars than consumers believe is owed."

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