Bankruptcy May Help Save a House from Foreclosure

October 19, 2012

Bankruptcy May Help Save a House from Foreclosure

Plenty of homeowners in California have felt the downward pressure of the economy over the last few years, and many have unfortunately received notices regarding foreclosure. When a homeowner receives a notice of default followed by a notice of sale, an overwhelming feeling of dread and confusion may arise when deciding how to address the circumstances. For some distressed homeowners facing foreclosure in California, bankruptcy may be the most viable option to buy time and perhaps even save the home.

Non-Judicial Foreclosure in California

Every state in the U.S. has its own foreclosure process, falling generally into one of two foreclosure processes: judicial foreclosure or non-judicial foreclosure. California is a non-judicial foreclosure state. Under such a system, foreclosures are processed according to foreclosure requirements established by state statute and are conducted outside of the court system. When a homeowner defaults, he or she will receive a default letter in the mail and a notice of default may be recorded at the county recorder's office. If the homeowner does not cure the default within a certain period of time, a notice of sale will be mailed to the homeowner, posted in public places, and recorded at the county recorder's office. While a homeowner may well know that he or she is in financial trouble before notices of foreclosure begin to arrive, it may one of the last opportunities to consider legal advice before the foreclosure process slips out of his or her hands. Bankruptcy, particularly Chapter 13 bankruptcy, may be an appropriate tool for some homeowners who need time to consider their next move.

How Bankruptcy May Prevent Foreclosure and Loss of Home

One of the most important aspects of bankruptcy is the automatic stay. The automatic stay is an automatic court order that occurs when a person files for bankruptcy. It prohibits collection attempts by creditors and allows the bankruptcy to proceed in an orderly manner. Importantly for homeowners, the automatic stay halts creditor actions, such as foreclosure, evictions and utility shutoffs. Creditors and lenders who violate the stay face legal repercussions. Since the stay stops the foreclosure process, it allows distressed homeowners a chance to plan their next steps.

Another important tool that bankruptcy -- specifically Chapter 13 bankruptcy -- offers distressed homeowners is the ability to modify or eliminate secured debts, such as a home loan with a mortgage. In Chapter 13 bankruptcy, payments toward a secured debt, like a home loan from a bank, can be lowered and past-due amounts can be paid off over a period of up to five years. Moreover, bankruptcy may also allow a homeowner to strip away second or third mortgages on the home. These options may allow distressed homeowners to catch up with home loan payments and stay in their homes. However, homeowners should understand that they may be required to make late payments on top of the monthly mortgage payment. If a homeowner fails to right his or her financial sails during bankruptcy, the home may still be foreclosed upon by the bank.

In conclusion, filing bankruptcy disrupts the ability of the lender to recover the home from the homeowner, but the lender may proceed with the foreclosure after the bankruptcy case is closed. In some cases, the lender may try to take the house out of bankruptcy protection. Since a person's home is often his or her most prized possession, speaking with an experienced bankruptcy attorney when threatened by foreclosure will help a homeowner understand all of the available choices to save the home.

Article provided by The Law Offices of Michael H. Raichelson
Visit us at http://www.cabkattorney.com