Defaulting on your mortgage can lead to the loss of your home. Lenders will often attempt to foreclose after several failed payments to offset your mortgage. Before foreclosing, lenders typically allow you time to create a repayment plan to cover the missed payments.
Even with these repayment plans, you might still be unable to catch up on the repayments. This is especially true if you have several other debts and little disposable income to cover them all.
Chapter 13 bankruptcy can offer a way out by providing you with a reorganization of your debt and a repayment plan. You can save your home and pay your debts without the looming threat of foreclosure. Contact the Los Angeles Bankruptcy Attorney if you have any questions about how a chapter 13 bankruptcy can help after a foreclosure sale date.
Chapter 13 Bankruptcy and Your Home
For most of us, becoming a homeowner fits the definition of the American dream. However, few have the full amount to pay for the purchase of the house without a mortgage. Once you acquire a mortgage, you have to make consistent monthly payments as agreed upon with your creditor.
Over time, most people will encounter life changes that can affect your finances and ability to get your mortgage payments up to date. Defaulting on your mortgage increases the chances that you might lose your home in a foreclosure.
When you buy a home, you make a deposit, and a creditor finances the rest of the money. What happens is that the house serves as the collateral for the mortgage. Therefore, if you default, the creditor can sell your home to recover the balance.
A foreclosure will result in the loss of your home, and you will need to find a new place to live. It can also be a stressful and expensive process for your family. You might also have to repay any loan balance if the creditor does not recover the full amount from the sale of the house.
A foreclosure usually takes some time before the creditor can sell your home. The length of the process allows you to salvage your home through different methods.
One of the best ways you can prevent foreclosure is by communicating with your creditor. Since you can often see a financial change approaching, you could notify your creditor about the change and request a reorganization of the debt.
Some lenders also allow restructuring your debt so that you can make affordable monthly payments every month. However, even with a new repayment plan, you might find paying the mortgage becoming more difficult.
Consistently failing to update your payments will result in collection actions against you. The lender could foreclose upon your home to recover the remaining debt. Most lenders consider your loan defaulted if you fail to make payments for three consecutive months. They will issue you with notices and begin the foreclosure process.
This process can be judicial (through a court) or non-judicial (outside court). A non-judicial foreclosure takes a shorter time. However, the law requires that creditors offer you a form of relief to save your home.
The relief could include paying some or all your arrearages or refinancing your loan. If you cannot prevent the foreclosure, the lender will auction your home to the highest bidder.
If you do not intend to keep your home, you can wait until the creditor forecloses upon the home. But if you intend to keep your home, in the short-term or long term, you must act fast to save your home from foreclosure.
One of the options you have in protecting your home from a foreclosure is filing a chapter 13 bankruptcy. Chapter 13 bankruptcy is a reorganization of your debt. You also come up with a repayment plan to cover the debts you owe.
Chapter 13 bankruptcy is a good idea if you have the income to:
- Continue making the mortgage payments
- Repay the debts you owe in three to five years
- Pay creditors for non-exempt equity
- Make other payments under chapter 13
Filing for chapter 13 bankruptcy can also lead to the discharge of junior mortgages if the first mortgage is more than the value of your home. A chapter 13 bankruptcy has a lien stripping tool that converts second and third mortgages into unsecured debt. Therefore, when the bankruptcy period ends, you will not have to make additional payments for the junior mortgages.
Immediately you file for chapter 13 bankruptcy, your debts go into an automatic stay. This means that any foreclosure proceedings or collection activities against you will stop until the court approves the repayment plan.
A chapter 13 bankruptcy is a good idea whether you intend to live in your home for a little longer or want to keep your home. Some of the reasons you can file a chapter 13 bankruptcy include:
- You want to stop the creditor from foreclosing on your property
- You are not eligible for chapter 7 bankruptcy because you earn a higher income (chapter 7 bankruptcy allows you to get rid of your debts if you do not have a disposable income)
- You do not want to liquidate your assets
- You want to strip off a second or third mortgage, especially if your house has fallen below the market value of the first mortgage
- You want to modify your mortgage loan
The Automatic Stay
One term you will frequently hear when filing for bankruptcy is an automatic stay. An automatic stay prevents all collections activities against you. Therefore, creditors cannot legally sue, collect, or engage in collection activities for any debts you owe.
An automatic stay allows you to postpone the collection activities against any secured or unsecured debt. The stay also allows you more time to negotiate a loan modification with your lender.
You can file a chapter 13 bankruptcy and, at the same time, work with your lender to modify the terms of your mortgage. A mortgage modification could result in lower interest rates or reduced monthly payments.
The modification will also make your mortgage current if the lender agrees to add missed payments to the end of the mortgage. You should request the modification after filing a chapter 13 bankruptcy but before the court approves the bankruptcy case.
There are exceptions and limitations to the automatic stay. The first limitation occurs when you have filed bankruptcy several times. Some people tend to take advantage of bankruptcy to prevent creditors from collecting their dues.
The court sees such behavior as filing bankruptcy in bad faith. It, therefore, places restrictions on the length of the automatic stay if you have filed bankruptcy severally before.
If you file bankruptcy twice in a single year, the court will limit the automatic stay to thirty days. This means that you have thirty days after which creditors can commence collection activities to recover any arrearages. You can increase the length of the automatic stay by proving to the court that you filed the second bankruptcy in good faith.
Filing three bankruptcies within twelve months arouses the same presumption that you filed the case in bad faith. Therefore, the court will not allow an automatic stay.
A limited or no automatic stay does not protect you much since creditors can still collect from you. This is especially the case if you filed a bankruptcy case before. However, you can request the court to extend or impose the automatic stay.
To make this request, you have to file a motion with the court. The motion should include the reasons:
- The court dismissed the previous bankruptcy case
- The court should extend or impose a stay on your current case
The first step when filing this motion is to complete the required forms. You can get these forms from the local bankruptcy court. Once you fill these forms, get a hearing date from the court, and then file the motions.
The timing of filing the motion is a sensitive issue. You must file this motion before the stay period expires. Therefore, take your time before you decide to file bankruptcy to save your home.
Also, contact an attorney who can help you identify problems such as delayed filing of paperwork that could lead to a denial of your requests. Ideally, you should file the motion to extend the stay at the same time as the bankruptcy.
Attend the hearing, especially if your creditor(s) opposes the motion. If any creditor is opposed to the motion to extend the stay, you must prepare to argue your case. The judge will then decide whether to extend the stay.
You can request the court to extend or impose an automatic stay, but your creditor can also request the court to lift the same stay. If the court approves the motion, your mortgage provider can resume collection efforts, meaning that the creditor can foreclose on your home.
Applying for Chapter 13 Bankruptcy
Few creditors request the court to lift an automatic stay. Since a mortgage is a secured loan, it is not dischargeable. This means that the creditor still gets repaid most or all of the debt through a chapter 13 bankruptcy.
Before filing for this form of bankruptcy, you must meet the set eligibility standards. These include:
- You must have unsecured debts that do not exceed $394,725
- Your secured debts must not exceed $1,84,200
If you meet these standards, then find an attorney to help you with the filing process. Getting everything right when filing the paperwork contributes to whether the court approved the case. Your attorney will also help you make a correct estimate of the cost of the procedure.
Typically, you will pay about $310 as filing and miscellaneous fees. You will also need to provide details of:
- All the creditors you owe and the amount you owe them
- The sources of your income
- Your living expenses
- Your tax information
The repayment plan under chapter 13 bankruptcy utilizes the disposable income you have after deducting your basic living expenses.
Coming up with a repayment plan is the next step in the process. A repayment stipulates the payments you will make towards your debts and the frequency with which you will make these payments.
You must file the repayment plan with the court for approval. The repayment plan categorizes debts into priority, secured, and unsecured debt; priority debt gets the first consideration followed by secured debt. You must clear priority debt first before other types of debt.
Once you submit your repayment plan, the court will hold a conformational hearing during which the judge determines whether the repayment plan is satisfactory.
If the court rejects the plan, you have to make another plan until it is acceptable in the court. If the plan is approved, you will pay a set amount every month to the bankruptcy trustee. He or she will then distribute the payment to all the creditors based on priority.
Keeping Your Home after Chapter 13 Bankruptcy
Now, filing a chapter 13 bankruptcy does not relieve you of any obligation to pay your mortgage. It only allows you more time to strategize and create a repayment plan for your debt.
So, if the court approves your bankruptcy case and repayment plan, you must make timely and consistent payments towards your mortgage. You can make the payments either directly to the lender or a bankruptcy trustee.
If you pay through a bankruptcy trustee, he or she will distribute the payment to the mortgage provider and other creditors whom you owe. The specifics of how you will repay your debts are included in your repayment plan.
You will continue making these payments throughout the bankruptcy period, usually three to five years. Once the period ends, you will also pay any balance on your mortgage, especially for the first mortgage.
Failing to make a payment can lead to the dismissal of your bankruptcy. However, if you notice a delay or default in your payments, talk to the bankruptcy trustee. Most often, the trustee will evaluate your case and might allow you more time to bring your payments up to date.
If the trustee files a motion in court, you can challenge it by presenting evidence to explain why you missed the payment. The court might then add more time for you to catch up on your payments.
Some changes in income can require a modification of your repayment plan. These changes include job loss and wage reduction. In such a case, you need to file a motion with the court to propose a new repayment plan.
You must indicate the changes in your finances and provide a breakdown of your living expenses. The court will review the modified plan before confirming it. The confirmation will depend on whether the creditors or other parties in the bankruptcy object to the modification.
A modification plan is an ideal solution to deal with temporary changes in your financial situation. These situations could include illness or job loss. However, sometimes you may experience permanent conditions, which will affect your ability to make timely payments.
A plan modification can also work in the opposite direction. Maybe you had a promotion at the job or are earning more than you used to earn, then, you can modify the plan to increase your payments.
Where you experience a permanent change that will prevent you from making payments through your repayment plan, you might request a hardship discharge.
A hardship discharge in chapter 13 will discharge your debts before the three or five-year period elapses. The court must approve the hardship discharge before you can be released from some of your obligations.
The factors the court considers when determining your eligibility for hardship discharge include:
- The circumstances you are facing and your control over them: you are likely to get the discharge if you are experiencing circumstances beyond your control
- The unsecured creditors have recovered as much money as they would have under a chapter 7 bankruptcy: the court will look at what is in the best interest of the creditor
- It is not practical to modify your plan (for example, because you do not have enough money to finance a modified repayment plan)
Find a Los Angeles Bankruptcy Attorney Near Me
Owning a home could give you a sense of belonging and pride. However, it can also be the source of worry, especially if you fall behind on your mortgage payments. Defaulting on a mortgage is often the beginning of foreclosure. The mortgage provider can foreclose upon your home to recover the debt you owe.
Nobody wants to default on his or her mortgage; however, financial difficulties, including too many debts, can lead you into default. Luckily, you can reorganize your debts and save your home through a chapter 13 bankruptcy.
Filing for bankruptcy gives you the chance to repay your debts without the pressure from creditors and debt collectors.
Filing bankruptcy involves several laws and procedures that you must observe to ensure that the court approves your case. Therefore, you may need the help of the Los Angeles Bankruptcy Attorney to ensure that you have better chances of protecting your home from foreclosure. You can contact us at 424-285-5525 to learn more about how we can help you.