Using Bankruptcy to Avoid Home Foreclosure
When default on mortgage payments leads the lender to threaten foreclosure, you need to take prompt action to protect your home. Bankruptcy is an effective way to block foreclosure while allowing you to devise plans for getting back to financial solvency.
Filing for bankruptcy protection under Chapter 7 or Chapter 13 causes an automatic stay to go into effect, requiring creditors and their agents to stop their collection efforts while the bankruptcy case is pending. This generally includes foreclosure actions.
If you have fallen behind on your mortgage payments and cannot catch up, consult one of our experienced California bankruptcy attorneys who can protect your property from going into foreclosure.
In California, if you have missed three months of mortgage payments, you have defaulted on the terms of the mortgage agreement you signed. In order to stop the lender’s foreclosure, you have to pay the arrears in a lump sum and continue making regular monthly payments on time. Most people who are facing foreclosure don’t have the funds to make that lump sum payment.
In a Chapter 13 bankruptcy, the court approves a plan for repayment of your debts over three to five years. This allows you to spread the lump-sum payment over the life of the plan, in addition to making your regular monthly mortgage payments. So long as you make the payments required by the plan, the lender cannot foreclose on your home.
Another benefit of Chapter 13 is that you may “strip” junior liens — namely second mortgages and secured lines of credit —if the first mortgage is greater than the value of your home. Those junior loans become unsecured and are made part of the repayment plan.
In a Chapter 7, the equity in your home is among the assets that are considered exempt from liquidation — that is, from being sold to pay back creditors. That usually means you can keep your home. You still need to make your monthly mortgage payments, but the mortgage arrears and other unsecured debts — such as credit cards, lines of credit and hospital bills — are discharged. As such, you may find the mortgage payments manageable as you get back on your feet financially.
Located in the heart of downtown Beverly Hills, the Law Offices of Michael Jay Berger provides a wide range of services for individuals and families who risk the loss of their homes due to heavy mortgage debt. Call me at 310-271-6223 or contact me online to schedule a free consultation.