Foreclosure Prevention 

Are you behind on your mortgage payments? Perhaps you have tried to qualify for a loan modification and then were denied causing you to fall behind on payments. If you are in fear of losing your home to foreclosure filing bankruptcy can help. Once a bankruptcy petition is filed the “automatic stay” goes into effect. The stay requires that all your creditors immediately stop collections efforts including foreclosure proceedings.

What Is Foreclosure?

Usually when a borrower falls behind on mortgage payments, the lender begins the legal process of selling the home at auction in order to get payment for the loan. This is the foreclosure process. It involves several steps, including notification to the borrower in the form of a document called a NOTICE OF DEFAULT which is typically posted on the front door of the home.

Foreclosure doesn’t happen overnight. Usually a lender waits to start the foreclosure process after you’ve missed several payments, often three or four. After several missed payments, the lender will give the notice of default which notifies you that you have 90 days to cure the default. After the 90 day period has passed the borrower will receive a Notice of Sale via certified or registered mail giving the borrower 20 days notice of the trustee sale (auction sale).

Here are some ways that filing for bankruptcy can help you if you’re facing foreclosure:

The Automatic Stay: Delaying Foreclosure

When you file either a Chapter 7 bankruptcy or Chapter 13 bankruptcy petition, the court automatically issues an order that provides for an “automatic stay” to take effect. The stay directs your creditors to immediately cease their collection activities. If your home is scheduled for a foreclosure sale, the sale will be legally postponed while the bankruptcy is pending. The typical Chapter 7 case lasts three to four months.

There is an exception to the general rule above, however. The lender can seek permission of the court to have the stay lifted in respect to the foreclosure sale and, therefore, proceed with the sale. The bankruptcy will still typically postpone the sale by at least two months or longer if the lender is slow in pursuing the motion to lift the automatic stay.

How Chapter 13 Bankruptcy Can Help
If you’re like many people you’ll do whatever is necessary to stay in your home for the indefinite future. If you’re behind on your mortgage payments with no feasible way to get current, the only way to keep your home is to file Chapter 13 bankruptcy.

How Chapter 13 works. Chapter 13 bankruptcy lets you pay off the “arrearage” (late unpaid payments) over the length of a repayment plan you propose. The length of the plan is dependent on how much disposable income a “debtor” has. Most plans are between 3 and 5 years. In order to make a Chapter 13 work, you’ll need enough income to at least meet your current mortgage payment at the same time you’re paying off the arrearage. Assuming you make all the required payments up to the end of the repayment plan, you’ll avoid foreclosure and keep your home.

2nd and 3rd Mortgages. Chapter 13 can also help you eliminate the payments on your second or third mortgage. If your first mortgage is secured by the entire value of your home, you may no longer have any equity with which to secure the junior mortgages. In other words, if you are underwater on your first mortgage you can convert the junior mortgages to wholly unsecured debt which takes last priority in Chapter 13 and may not have to be paid back. See Eliminate a Second Mortgage for more.

Chapter 7 Bankruptcy will postpone a foreclosure sale for up to 4 months and sometimes longer. Chapter 13 Bankruptcy allows a person to get caught up on their mortgage payments over a period of 3-5 years possibility allowing you to keep your home.

Contact Jeremy Peck for a free consultation and to discuss preventing foreclosure at (831) 224-3199 or send an email!

Jeremy Peck serves residents of Monterey, Santa Cruz, and San Benito Counties helping them with their debts problems.