To maximize the benefits of filing for bankruptcy, sometimes you have to time your filing just right. If you're facing foreclosure of your home, you may be wondering whether you should declare bankruptcy before or after the bank has taken the home. It depends on a number of factors, but here are two questions that may help you decide what to do.

Are You Trying to Keep the Home?

Whether you should file bankruptcy before or after the foreclosure process has started depends on your ultimate goal for the home. Do you want to stay in the house or do you want to give it up?

Filing bankruptcy before the bank starts foreclosing on it is the best option for keeping the house. When you file your petition, you are immediately protected by a legal order called the automatic stay that prohibits creditors from continuing collection action.

This means the lender must stop the foreclosure process immediately and won't be able to continue until your case has resolved. Depending on the type of bankruptcy you filed, you can either force the lender to modify your loan to make it more affordable, or you can strip any extra liens from the loan and get caught up on back payments.

On the other hand, if you're not interested in keeping the home, you can file bankruptcy at any time. In fact, if you have to pay HOA fees, you may want to wait until after the property has been repossessed and sold to file. Bankruptcy will eliminate any past due fees that may be owed on the property, and you won't be responsible for any future fees since the home will be owned by someone else.

Additionally, since you won't have the home, some extra bankruptcy exemptions may become available to you that lets you protect more non-exempt property. Your attorney can let you know what those are and the best way to apply them.

Are You Trying to Avoid a Deficiency Judgment?

When the bank forecloses on a house, they sell it to recoup their losses. If the home sells for less than what you owe on your mortgage, the lender may sue you for the difference, called a deficiency judgment.

Some states bar banks from doing this, while others only allow it if the debtor meets certain qualifications. If deficiency judgments are allowed in your state and you think the lender will sue you for one, then it's best to file bankruptcy before foreclosure occurs. The debt will be wiped out completely and the lender won't be able to come after you for any shortfalls.

A bankruptcy law firm can provide you with guidance so you can get your finances in order. For help figuring out the best time to file bankruptcy, contact a local attorney.