Foreclosures have been on the rise since 2008. From 2007 to 2009 around 3 million homeowners were facing foreclosure. That number has tripled in size. This housing collapse combined with economic hardships and millions of homeowners being “upside down” or “underwater” in their homes has led to a housing crisis in the United States.
Americans are turning towards filing Chapter 13 bankruptcy in order to stop an impending foreclosure sale. The original purpose of Chapter 13 bankruptcy was to allow a person who was facing financial ruin to place all of their debt into one large amount which would then be restructured and paid off one month at a time over a three to five year period.
In general, a Chapter 13 bankruptcy requires more than just a home being “underwater” for a court to rule in your favor. If your income is adequate for making your mortgage payments and you have no real noteworthy debt, then you probably won’t qualify for a Chapter 13 bankruptcy. Of course, your circumstances may be different or there might be other conditions that apply. But simply being “underwater” by your mortgage loan and behind on your payments is generally not enough to qualify.
If your financial situation is temporarily in disorder because of unexpected bills, medical emergencies, major vehicle repairs, etc., notifying your lender is critical. It is very possible that the lender may offer a temporary deferment of your payments or provide you with re-payment terms which allow you to temporarily reduce your payments owed in return for an extension of your mortgage. Contacting an experienced, knowledgeable attorney – a true expert in Los Angeles Bankruptcy – can give you the advice and representation you need when facing such a situation.
Stop Foreclosure with a Bankruptcy Attorney
When you file either a Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an order (called the order for relief) that includes an “automatic stay.” The automatic stay directs your creditors to cease their collection activities immediately. No excuses. If your home is scheduled for a foreclosure sale, the sale will be legally postponed while the bankruptcy is pending – typically for three to four months.
However, there are two exceptions to this general rule:
Motion to lift the stay: If the lender obtains the bankruptcy court’s permission to proceed with the sale (by filing a “motion to lift the stay”), you may not get the full three to four months. But even then, the bankruptcy will typically postpone the sale by at least two months, or even more if the lender is slow in pursuing the motion to lift the automatic stay.
Foreclosure notice already filed: Unfortunately, bankruptcy’s automatic stay won’t stop the clock on the advance notice that most states require before a foreclosure sale can be held (or a motion to lift the stay can be filed). For example, before selling a home in California, a lender has to give the owner at least three months’ notice. If you receive a three-month notice of default, and then file for bankruptcy after two months have passed, the three-month period will elapse after you have been in bankruptcy for only one month. At that time the lender could file a motion to lift the stay and ask the court for permission to schedule the foreclosure sale. This doesn’t mean the lender’s motion would be granted, but it is best to have an experienced attorney on your side in an effort to prevent that from happening.
Many people will do whatever they can to stay in their home for the indefinite future. If that describes you, and you’re behind on your mortgage payments with no feasible way to get current, the only way to keep your home may be to file a Chapter 13 bankruptcy. Chapter 13 bankruptcy lets you pay off the “arrearage” (late unpaid payments) over the length of a repayment plan you propose – five years in some cases. But 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 mortgage payments: Chapter 13 may also help you eliminate the payments on your second or third mortgage. That’s because, if your first mortgage is secured by the entire value of your home (which is possible if the home has dropped in value), you may no longer have any equity with which to secure the later mortgages. That allows the Chapter 13 court to “strip off” the second and third mortgages and re-categorize them as unsecured debt – which, under Chapter 13, takes last priority and often does not have to be paid back at all.
If you are facing massive debt and financial ruin that is only aggravated by your mortgage payments, then you should call me, your Los Angeles Bankruptcy expert, at (213) 799-1218 for a free consultation.
By Travis Kasper