Are you facing a foreclosure on your home or property?
The California Foreclosure Process
Most foreclosures in California are “non-judicial”, meaning they are done without involving courts.
They are done based on the contract signed for the security interest in the Property. The Note and Deed of Trust.
The process takes a minimum of 3.7 months and contains the following steps:
- Recording a Notice of Default: This document states that you are in default on the loan and they intend to foreclose. The Notice of Default must be recorded 3 months before a Notice of Sale can be published.
- Publishing a Notice of Sale: This notice cannot be published until after 3 months have passed after recording the Notice of Default and it must give no less than 21 days notice of the sale date.
In California, you have until five (5) business days before the sale date to “cure” the default. This means if the amount you owe in missed payments, plus the late fees and costs of foreclosure, is given to the lender before that 5 day period, you will no longer be in default and the foreclosure sale will be canceled.
When faced with a foreclosure sale on their home, most people do not take the right steps to resolve the delinquency and stop the sale.
Many start by trying to get a loan modification, which is great if you can do it.
The problem is, banks will often drag their “feet” in deciding on the modification and the sale date generally remains while the bank is deciding your fate.
Most of my clients find out they have been denied the loan modification a day or two before the sale date. And that is often not enough time to prepare for and file a viable bankruptcy case.
How Does Bankruptcy Chapter 13 and Chapter 11 Work To Save Your Home?
You want to stop the foreclosure sale on your home.
How do you do it?
A bankruptcy filing under any Chapter will stop a foreclosure sale. Temporarily.
The Automatic Stay In Bankruptcy
When you file bankruptcy, an “automatic stay” goes into place stopping all collection actions against you and any property you own. This includes foreclosure sales.
A “stay” is a court ordered injunction. And, as the name implies, it is imposed automatically the moment a bankruptcy case is filed (with some exceptions). You don’t need to get a separate court order stopping the actions.
The key is resolving the issue that led to the foreclosure process starting.
Typically, that issue is falling behind on required mortgage payments.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy will temporarily stop the foreclosure sale.
But there is no mechanism in Chapter 7 to catch up on payments, since payments are not made on debts in Chapter 7.
A typical Chapter 7 case is completed in about 4-5 months, after which time the automatic stay disappears.
So that is not the best weapon to deal with a foreclosure sale.
Chapter 13 Bankruptcy Stops Foreclosure and Allows Cure Of Default
In Chapter 13 you set up a payment plan with your creditors.
The payment period is 36 to 60 months, depending on a number of factors, including your income received in the 6 months prior to filing the case.
You can use Chapter 13 to catch up on your past due mortgage payments over that time period.
So, for example, if your reinstatement amount (past due amount) is $50,000, you would need to make a payment of approximately $1,000 per month for 60 months to “cure” the default and bring everything current.
Of course, you must also maintain your regular mortgage payments that come due after your case is filed.
Once you complete those payments, your mortgage will be current, and you will be discharged from any dischargeable unsecured debts that you have.
Whether you have to pay more than that default cure amount depends on what other debts you have, and what your income and expenses (budget) are.
There are limits on how much debt you can have in a Chapter 13 case.
A consultation with an experienced bankruptcy attorney will inform you how your payment plan would work.
See my Chapter 13 page for more information.
Chapter 11 Also Stops Foreclosure Sales
Like Chapter 13, Chapter 11 also allows payment to be made to cure a mortgage default over time.
Chapter 11 can also allow you to stretch out payments for longer than 60 months.
But Chapter 11 is much more complicated than Chapter 13.
It requires getting a sufficient number of “votes” in favor of your repayment plan and often requires 100% repayment of unsecured debts if creditors do not agree to their treatment.
It is also much more expensive than Chapter 13.
But it is a powerful tool to be used in more complicated cases or those that are not eligible for Chapter 13.
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