There are a lot of Americans who have, at one point or another, fallen behind on their mortgage payments. In some cases, the lender or mortgage company may consider working with the homeowner to work out a deal to catch up or get out of an upside down mortgage (i.e. short sale or loan modification). But most lenders are not interested in working out a deal of this nature. Most prefer to begin the foreclosure process as stated in the original mortgage documents. This usually means the creditor will repossess the home and sell it at public auction. The proceeds of the auction are applied towards that mortgage balance and associated legal fees.
However, the foreclosure process takes time. Most creditors don’t begin foreclosing until the homeowners are two or three months behind on their monthly payments. This gives the homeowner a little bit of time to consider their alternatives to avoid foreclosure: loan forbearance, deed in lieu of foreclosure, or short sale. If none of these alternatives is feasible in a specific situation, homeowners can consider the benefit of bankruptcy.
The most immediate benefit of bankruptcy for filers facing a potential foreclosure on their home is the automatic stay. It is one of the most effective means of delaying a foreclosure as it ceases all collection activity against the filer immediately. If a foreclosure sale is scheduled on the filer’s home, by law it must be postponed until the bankruptcy is finalized. This takes approximately three to four months.
There are only two situations in which bankruptcy will not effectively buy time for homeowners wishing to keep their home out of foreclosure:
- When the Lender Files a Motion to Life the Stay: The bankruptcy court offers all creditors the opportunity to petition to continue with collection attempts by petitioning the court to lift the stay. If granted, the foreclosure could continue as planned, but in most cases, even if the stay is lifted, the foreclosure schedule is still delayed by at least two months.
- If the Foreclosure Notice has Already Been Filed: In most states, lenders are required to provide homeowners with a specified amount of “notice” prior to proceeding with a foreclosure sale. If advance notice has already been given, a bankruptcy’s automatic stay will not stop the foreclosure from moving ahead as planned. In California, lenders are required to provide homeowners with at least three months notice before selling the home due to foreclosure. If the California homeowner receives the three month notice and then files bankruptcy a couple months later, the three month period would end after the homeowner was in bankruptcy for one month, so the lender could file a motion to life the stay and proceed with the foreclosure.
If you have questions about how to protect your home from foreclosure by filing bankruptcy, get in touch with one of the experienced southern California bankruptcy attorneys at Westgate Law.