Chapter 13 Stops Foreclosure Sales in California
There are many things people do to try and save their homes from foreclosure in California.
My Los Angeles area clients have tried loan modifications and other loan programs.
But the clock ticks on foreclosure sales and it is not always possible to resolve the issues before a sale takes place.
Sometimes clients even hire an attorney to sue the foreclosing bank and get a temporary restraining order (TRO) against them to delay the sale.
But that can get very expensive.
The Automatic Stay in Bankruptcy
The key feature of any bankruptcy is the automatic stay. The Stay is a federal court injunction which automatically kicks in the moment a case is filed. This injunction prohibits any collection efforts, new or continuing, by a creditor. Thus, it includes any foreclosure proceedings.
In a Chapter 7, the foreclosure sale would only be stopped temporarily, because there is no mechanism in Chapter 7 to catch up on payments. And that is most common reason that triggers foreclosures. So the sale would be stopped until either the case is completed (typically 4-5 months) or until the mortgage/loan creditor gets “relief” from the automatic stay. That is permission from the bankruptcy court to proceed with the foreclosure. That is routinely granted in Chapter 7 cases.
Catch Up On Mortgage Payments in Chapter 13
Chapter 13 is designed, however, to allow extra time to catch up on delinquent payments to secured creditors such as mortgage or on vehicle loans. (There are restrictions on vehicle loans if the vehicle was purchased within 910 days of the bankruptcy filing)
It allows you up to 60 months to catch up on and reinstate loans from past due mortgage payments. So, for example, if you are behind $20,000 on your mortgage payments, you can catch up on those by paying $334 per month for 60 months. This is in addition to your ongoing regular mortgage payments and other living expenses, of course. So you must have sufficient income for your budget to handle that $334 per month payment.
If your budget can support more than a $334 payment and you have other unsecured debts (such as credit cards, taxes, medical bills, etc.) you may have to pay up to whatever amount your budget shows you are able to pay.
Another requirement in Chapter 13 is that you pay out as much to unsecured creditors as they would receive in a liquidation under Chapter 7. So if you have a lot of non-exempt equity in your assets, you may have to pay out more. This will depend on what exemptions are available under applicable (usually, State) law to protect the value of your assets. In California, the current homestead exemption is up to $626,400 so if you have less equity than that, it will not affect how much you have to pay out in a Chapter 13.
Our office routinely analyzes Chapter 13 options for clients and will advise you on exactly what you would need to pay in a California Chapter 13 to stop a foreclosure sale.
Remove Liens in California Chapter 13
You can also remove certain liens against your property in a Chapter 13.
Judgment liens (liens that result from a lawsuit against you) can be removed if they “impair” your homestead exemption. So if the value of your property minus the mortgage liens is LESS than the full amount of your entitled homestead exemption (again, approximately $626,400 in parts of California), you can likely remove the judgment lien.
Junior mortgage liens and deeds of trust can also be removed if the value of the property is less than the amount owed to senior mortgage holders.
These are additional benefits of Chapter 13 that you should discuss with a bankruptcy attorney in California.