The prospect of having your home foreclosed can be devastating for any person. This will cause a homeowner to look for all ways possible to safeguard their home. When a person has a substantial debt that is proving to be a challenge to service, filing for bankruptcy seems to be the best choice. Various codes in bankruptcy law can serve as a lifeline when one is facing bankruptcy. Chapter 13 in the bankruptcy code is decided to help individuals facing financial challenges to keep their property through a repayment plan. With this plan, one can stop their home or other property from foreclosure while easing their financial burden by formulating favorable repayment plans. The process of bankruptcy is complicated, with various legal requirements that must be met. Before filing for bankruptcy, it is essential to discuss the aspects involved with an experienced bankruptcy lawyer. The bankruptcy lawyers at Los Angeles Bankruptcy Attorney will help you with the process and advise accordingly.
Overview of Chapter 13 Bankruptcy
Chapter 13 code involves coming up with a debt management plan. This code is also known as the wage-earner bankruptcy. To qualify in filing for Chapter 13 bankruptcy, one must have a steady income that will enable them to pay the installments agreed upon. Typically, most of these bankruptcy plans last for 60 months, although others may prefer a shorter duration.
When the plan is effected, the payments are made through a trustee that has been appointed. The trustee then makes payments to creditors based on the confirmed debt under the plan.
Filing for chapter 13 has its advantages when facing financial challenges. Some of these advantages include:
- A person can keep their home and catch up with due mortgage payments. This will help prevent any foreclosure.
- If you have a car loan, it is possible to lower your monthly repayments under the chapter 13 plan. Sometimes, a debtor can reduce the interest rate charged when the repayment plan is affected. With this plan, one can stop the repossession of their car as well.
- If you have continuing child support or alimony repayments, this plan can help you pay the overdue payments. However, the plan does not exempt you from the responsibility of paying your child support or alimony.
- Although income taxes do not qualify to be discharged, any past due taxes can also be paid through this plan.
- If you have unsecured debt, under this plan, you can only pay a certain percentage of them. This means that the other unsecured debt can be wiped out, and creditors will not demand from you when the debt has been discharged.
Aside from the above benefits of filing a chapter 13 plan, a person whose property is not protected under the bankruptcy exemptions may consider filing for Chapter 13 bankruptcy. This is necessary if one desires to protect their property from foreclosure or repossession.
The Provision of Automatic Stay in Bankruptcy
Whether a person obtains a discharge by filing for Chapter 13 bankruptcy or not, the filing automatically puts a pause on the process of foreclosure. The debtor is protected from the constant and persistent communication from the creditors demanding payment of their debts. Although the filing will not put a complete stop to the process of foreclosure, it will, however, give room for a person to plan. This is necessary even as one comes up with a schedule of repayment that is acceptable to all.
It is important to note that the stay position provided through filing for chapter 13 is only temporary and does not in any way guarantee your home will be safe. If some sections of the foreclosure were completed, these portions could not be reversed.
Sometimes one can file for chapter 13 very late when the foreclosure process to sell the house is completed. This will mean that the home will still be auctioned as per the requirements. Additionally, even with the temporary stay, you will yet be required to make the monthly mortgage payments. If you miss any of these payments, the creditor can file a petition to continue with the process of foreclosure.
How Chapter 13 Bankruptcy Affects Your Credit
While a person facing foreclosure will find some relief on filing chapter 13 bankruptcy, these are just temporary and straightforward solutions to your financial challenges. However, this approach to dealing with your economic problems can have lingering adverse effects on your credit.
Bankruptcy has many adverse effects, with one being to your credit score. When one files for chapter 13 bankruptcy, the report will remain on their credit record for seven years. This negatively affects the applicant’s credit score. When one looks at borrowing, a lender will take into consideration their credit score. Although other factors are taken into account before lending out money, a negative report on your credit score can result in you not getting credit. Simple things like credit cards will not be readily available to you, and if they are made available, the interest rate charged may be high.
Your future credit needs, such as refinancing your mortgage or getting car loans, among other loans, will also be affected. Most lenders will decline from giving you loans that require a prolonged period of repayment or a high amount of credits. If the loan application is, however, approved, the interest rate charged can be very high, translating to higher monthly repayments.
When your record shows that you had applied for any type of bankruptcy, lenders will tend to stay away from you because they consider you a high risk. At the same time, a foreclosure results in an unfavorable impact on your credit. If the foreclosure goes through, its report will be on your credit record for seven years as well. What this means essentially is that when the foreclosure goes through or you petition for chapter 13 bankruptcy, the effects on your credit score are the same. The only difference and advantage, however, is that with chapter 13, you will be able to save your home from the auction.
All in all, the repercussions of a foreclosure or bankruptcy depend on one’s circumstances. Speaking with an experienced bankruptcy lawyer is essential before deciding on what to do. Your lawyer will assess your situation and give you advice that is suitable for it. It is also vital to consider the impact of losing your home and what it would mean to you and your family. Bankruptcy or foreclosures are not good options, but faced with difficulties, one has to decide on the better one.
What Happens Following the Blocking of a Foreclosure Sale?
Once you have successfully petitioned for chapter 13 bankruptcy, the next step would be to come up with a repayment plan. What this allows you to do is to spread out the overdue payments over a period that is acceptable to the creditor while still keeping up with the current payments. Fortunately, chapter 13 allows one to spread their dues in 60 months or less, depending on your agreement.
For instance, if you are behind on your mortgage payments with $30,000, you can propose a plan that spreads this amount while keeping up with your monthly repayments. This will mean that you can have a payment plan that allows you to pay $500 a month for the overdue payments, while still keeping up with your current ones.
It is advisable, however, to begin the process of filing for bankruptcy early. Many people get their homes auctioned because they start the process late. When one waits for a few days before the foreclosure date, it becomes impossible for a lawyer to begin the process of filing a bankruptcy petition. When one starts facing difficulties that may result in a foreclosure, it is vital to look for a bankruptcy lawyer.
The Process of Foreclosure
Most foreclosure cases are non-judicial in California. This means that a creditor does not need to petition the court to allow them to put a foreclosure notice on your property. Foreclosure sales often begin with recording a notice of default by the creditor or lender.
The lender is obligated to notify you if they plan to put your property for foreclosure and when they put up the notice. From that date, one is typically given three months before the foreclosure date is published. After the publication of the sale date, one is given a further 21 days before the property is auctioned or sold.
Because you understand your financial challenges, you are likely to know when the future. This makes it essential to consult a bankruptcy lawyer before the three-month notice is issued or once it is issued. The downside of waiting for a long time before filing a bankruptcy petition is the limited options as well as the lengthy process of filing.
Aside from stopping the foreclosure of your home, a chapter 13 bankruptcy will also remove particular judgments about your home. Unsecured loans or mortgages will also be taken care of through bankruptcy. Speaking to an experienced bankruptcy lawyer can help you understand every aspect and the expectations thereafter.
When a person misses paying their mortgage once or twice, the lender will get in touch with them demanding payment. According to Civil Code 2923.5 of California, the lender will, however, not begin the process of foreclosure until thirty days lapse from the day they contacted you.
Within this time, you can discuss with your lender to forge the way forward on how you can make repayments for the defaulted amount. If you fail to respond to the demands from the lender or are unable to agree, additional notice is sent. This notice advises you as well as other interested entities that a declaration of default on your loan is made. This is what was earlier discussed as the Notice of Default.
Why is the Notice of Default Significant?
This is a legal or official notice served to each entity that has an interest in a borrower’s property and informs them of the intended beginning of the process to foreclosure. The county recorder’s office is where the notice is filed. Copies of the notice are then sent to all interested entities through both certified and regular mail. The lender in filing the notice must indicate the amount in arrears.
When the notice of default is filed, the reinstatement waiting period starts. This period lasts for 90 days. During this period, you are expected to come up with solutions to clear the debt owed by either paying it off and the foreclosure fees or coming up with a plan of repayment.
Understanding Notice of Trustee’s Sale
Following the expiry of the reinstatement waiting period of 90 days, the trustee is obligated to check if the default has been solved or cured. In case the defaulted amount isn’t resolved or cured, and no repayment plan has been received, a notice to sell the property is issued. The trustee must officially serve the borrower with the notification as well. The law requires the warning to sell the property to be placed in a local daily at least once weekly for not less than twenty days.
Additionally, the trustee must post another notice that shows the impending sale or auction in a visible location around the property or home and another one at an off-property site. After the publication period of twenty days is over, an auction can be carried out to sell the property in question.
Fortunately, according to Civil Code 2924(c)(a)(1)(e), even when the reinstatement period expires, one can still save their property by making payment of all the foreclosure fees and arrears five business days before the set a date for the auction. You do not have to give up on your property and saving it until it is sold because you can have options to save it.
The trustee is not obligated to file any proceedings in the court to rightfully sell the said property. Usually, an auction is held that facilitates the sale, and the person that bids the highest gets to buy the property. Any person that wishes to buy the property must have the money presently if it is not the lender.
What Happens After the Foreclosure Sale?
Once your property or home is sold following a foreclosure auction, the sale is completed. It is highly unlikely the lender will set aside the sale. The transaction is even more finalized if the entity that bout the property was not the lender, and they have no connections to the lender. Once the sale is made and the property was your home or business premises, you must begin to make arrangements to move. However, you can also agree with the new owner on how you will move or have a tenancy agreement that is done in writing. Lack of this agreement can, however, see you get evicted, which can be a traumatizing experience.
It is always better to arrange with your lender the time to move before the foreclosure sale date if you feel you will not be able to secure your property. You can also consult your lawyer on the same and how to involve your lender on it.
Most lawyers will advise you to file for chapter 13 bankruptcy if you have a regular income that can sustain your monthly payments as well as the proposed repayment plan.
Advantages of Filing Chapter 13 Bankruptcy
Although the ideal situation is when one is not suffering from any debts, sometimes a person can have their plans flop. There are various advantages to filing a chapter 13 bankruptcy. Some of these are:
- The repayment period for your accrued debt can be stretched over a long period, which makes it easier for one to make payments. Additionally, upon completing the repayment plans as indicated in chapter 13, independent creditors are not obligated to be paid in full, while some unsecured debts can be wiped off.
- As one is making the payments for their debts under chapter 13, they still maintain ownership of the property
- Chapter 13 repayment plan gives you adequate time to plan your repayment and recover in your income while still having your dignity.
Disadvantages of Chapter 13 Bankruptcy
Even when this move will help you save your property, there are lasting repercussions for filing for bankruptcy. Some of the disadvantages will include:
- Any amount of money you have after paying for your necessities is tied to the loan repayment plan.
- Your credit score is negatively affected. A report on your chapter 13 bankruptcy remains on your credit record for seven years
- You may not qualify for any credit cards and the ones you have you will lose them
- If you have an obligation to pay child support or alimony, filing for bankruptcy will not relieve you from your obligations
- If one of the debts you have is a student loan, bankruptcy will not relieve you from paying it
- Even when you file for bankruptcy, some debts you will be required to finish them but cannot escape them.
Find a Los Angeles Bankruptcy Lawyer Near Me
When facing foreclosure, it can be devastating and frustrating after you have worked hard all your life and risk losing your home. Instead of giving up and letting your home be auctioned, you can discuss the various options available for you to save your property as you recover financially. Some of the financial hardships can be for a season, and applying for a chapter 13 bankruptcy can help you take a breather. However, the process of applying for bankruptcy can be complicated, and one also needs to convince the court why and how you got into financial challenges. This makes it essential to hire the services of a bankruptcy lawyer that will help you through the process. At Los Angeles Bankruptcy Attorney, you will get excellent legal representation as well as financial advice to help you pull through. Call us at 424-285-5525, and let us discuss your options together.