Filing Bankruptcy Can Stop a Foreclosure Sale
Yes, it can stop the foreclosure process, (see California Foreclosure information below) and allow you time to catch up on the past due amounts, as well as deal with your other debts, provided that you act soon enough. In my Los Angeles practice, I see far too many people that have waited too long act.
The bankruptcy automatic stay will stop a pending foreclosure sale on your house (so long as you haven’t had a prior bankruptcy case dismissed within the past 12 months). The automatic stay remains in effect until your case is completed or dismissed.
In today’s economy, foreclosure sales are happening with increased frequency. People are unable to maintain the payments on their mortgages, go into default, and when they are unable to work out payments arrangements with the bank, eventually they lose their homes.
Filing bankruptcy can stop a foreclosure sale.
This is a very powerful tool. You definitely don’t want to wait until the last minute to avail yourself of this remedy, as I have written about before. Doing so greatly diminishes your chances of surviving the bankruptcy with a successful resolution.
Which Bankruptcy Chapters Stop Foreclosure?
The most typical Chapters to use to stop a foreclosure are Chapter 11 and Chapter 13.
This is because you can propose a Plan of repayment that catches up (cures) on the past due amounts you owe to your mortgage or other lenders against your home, over a 36 to 60 month period, or in a Chapter 11, which allows a potentially longer term cure of arrearages.
This, of course, assumes that you are otherwise eligible to file Chapter 13 (or 11) and have the regular income sufficient to propose such a plan.
Plus, in some situations, you may actually be able to eliminate junior liens on your property entirely. Visit my Chapter 13 page for more information.
Chapter 7 will temporarily stop a foreclosure sale, but usually just for a month or two. Since no payments are made in a Chapter 7 case, you would need to negotiate with a foreclosing creditor outside the bankruptcy case to resolve your issues, if possible.
In Chapter 13 the foreclosure sale will stop (assuming your attorney gets notice to the foreclosure trustee on time) as soon as the case is filed. Then what?
What Happens After The Foreclosure Sale Is Stopped?
Then you have to propose a plan to deal with what you owe.
One of the great benefits of Chapter 13 is you can take up to 60 months to catch up on the past due amounts and reinstate your loan.
Thus, if you are behind $20,000 in mortgage payments (including penalties and other costs), you can catch up on that over 60 months with a payment of under $400 per month. And, in a Chapter 13, the mortgage creditor MUST accept that. (Chapter 11 is trickier and creditors get to vote for or against your plan).
You also must stay current with all ongoing mortgage payments that come due after your case is filed, so you need to have enough extra income beyond your regular required expenses in order for this to work.
Don’t Wait Too Long To Get Foreclosure Advice
THE BIGGEST MISTAKE that people make is waiting until a few days prior to the foreclosure sale date to look into bankruptcy as an option.
At that point it will be difficult to find an attorney who can properly process everything in time to get your case filed on time, and you increase the likelihood of serious mistakes that way.
Wishful thinking and prayer alone will not stop your foreclosure sale from taking place by your mortgage lender. See my article on stopping foreclosure with bankruptcy.
The California Foreclosure Process
In California, most foreclosures are “non-judicial” meaning no court proceeding is required to foreclose on a property.
In most California foreclosure sales, the process begins with a recorded Notice of Default by the lender.
You have three (3) months from the date that Notice is recorded before the secured creditor (usually a mortgage holder) can publish a foreclosure sale date.
You then have an additional 21 days after the foreclosure sale notice goes out before the actual sale.
The best time to consult with a bankruptcy attorney is PRIOR TO OR DURING THE INITIAL 3-MONTH NOTICE OF DEFAULT PERIOD.
You can of course inquire later, but the closer you get to the foreclosure sale date, the less options you will have and the less likely it will be to succeed
In addition to stopping foreclosure sale on your home, Chapter 13 also allows you to remove certain judgment liens against your home in some instances as well as undersecured mortgages or deeds of trust. A qualified bankruptcy attorney can explain these options to you.
There are many other options available in Chapter 13 and 11 for eliminating certain mortgage liens (sometimes fully eliminating junior liens) on both principal residences, and other properties. A consultation with an experienced bankruptcy attorney will reveal what you can accomplish in those regards. See my individual bankruptcy chapters page for more information on the various chapters.
by, Mark Markus