It Is Possible to Avoid Foreclosure in Chapter 13 Bankruptcy

Chapter 13 Can Avoid Foreclosure in San JoseLong before the current foreclosure crisis in California, I met with hundreds of San Jose homeowners desperate to save their home from foreclosure. Yes, even when times were relatively “good” for many, there have always been many Californians who have faced foreclosure due to job loss, sudden illness, failure of a small business, and other factors. Of course, back in the early and mid 2000s, when everyone, it seemed, had lots of equity in their homes, San Jose foreclosures tended to move a good deal more swiftly. After all, the lender could be assured of receiving the full balance of the mortgage loan from the Trustee Sale. So they generally did not delay the foreclosure sale beyond the minimum time period allowed for a California foreclosure—90 days from the Notice of Default for the homeowner to reinstate the loan plus three weeks from the subsequent Notice of Trustee Sale.

That was then. What hasn’t changed is that the only way to truly avoid foreclosure is to bring the mortgage loan current. Unless you are one of the relative few whom the big banks have decided to help with a HAMP loan modification, Chapter 13 bankruptcy may provide the only avenue to avoid foreclosure. That’s because Chapter 13 bankruptcy can, in many cases, help a homeowner catch up on his mortgage payments, and bring a mortgage loan current. And after all, the only way to permanently stave off foreclosure is to remain current with your payments on your mortgage loan.

I am not here to tell you this is easy, by any means. In order to get a Chapter 13 payment plan confirmed by your Bankruptcy Judge, you must be able to demonstrate sufficient “disposable monthly income” to catch up on the balance of all payments in arrears over a three or five year period. In other words, the Chapter 13 bankruptcy petitioner must be able to not only start making his regular monthly mortgage payments “outside” the Chapter 13 payment plan (together with other monthly necessary living expenses like food, utilities, clothing, car payments, insurance, and the like), but also have some “disposable” income left over to put into a monthly Chapter 13 plan.

This works in many cases. For the homeowner who has just recently gotten back to work, for example, but who owes six or nine months of arrears on the mortgage loan. If she wants to save the home from an imminent foreclosure, Chapter 13 bankruptcy can provide a way for her to now get back on track and catch up on those back payments, by spreading them out over five years. Moreover, if she also has some significant unsecured debts—like credit cards—she can stop paying those altogether. The mortgage arrears must be paid off through the Chapter 13 plan, but the credit cards, as unsecured debts, get the lowest priority and do not have to be paid one hundred percent. In fact, they may get nothing if the Chapter 13 plan is confirmed as a “zero percent to unsecureds” plan.

Additionally, if the Chapter 13 homeowner has a second mortgage loan or home equity line of credit, and there is no security for that second in the home (meaning that the value of the home has fallen below the balance owed on the first mortgage), then our San Jose Chapter 13 bankruptcy attorneys may be able to “strip off” or remove that second from the home in the bankruptcy. The homeowner can catch up and bring the first mortgage current, and emerge from bankruptcy owning the home free and clear of the second mortgage loan.

Chapter 13 bankruptcy can provide very powerful tools to avoid foreclosure for many homeowners. If you find yourself facing foreclosure, you owe it to yourself to at least explore Chapter 13 with one of our San Jose bankruptcy attorneys. We offer free, no obligation consultations. Just give us a call.

This entry was posted in Chapter 13 Bankruptcy, Chapter 13 Lien Stripping, Foreclosure and tagged , , , , . Bookmark the permalink. Both comments and trackbacks are currently closed.