Many people have a general belief that filing bankruptcy can always stop a foreclosure sale. However, this is not always the case, since it depends on the type of case that is filed. So, how exactly does one stop a sale date and what Chapter do you have to file under?
How to Stop a Foreclosure Sale Date
Bankruptcy does stop the foreclosure process, at least temporarily, even if you file the day before a foreclosure sale date, and even if you are a year or more behind on your payments. This is because upon the filing of a bankruptcy, under any Chapter, the automatic stay immediately goes into effect by operation of law. But if you are like most people, "temporarily" stopping foreclosure is not good enough. You want to keep your house.
Stopping Foreclosure Permanently
Just because you file a bankruptcy and the automatic stay operates to stop foreclosure of your house, does not necessarily mean that the foreclosure sale will be stopped permanently. Depending upon the type of case that your San Diego bankruptcy lawyer files, and whether you have the financial ability to repay your missed payments, you may or may not be able to permanently stop foreclosure of your house.
How Far Behind On Payments Are You?
If you have missed on a couple of payments and your lender has only given you written warnings of its intent to foreclose but has not yet filed a Notice of Default with the county recorder, you may be able to file under any Chapter and successfully stop a foreclosure sale date. If you have missed several payments and your lender has already filed Notice of Default, you will likely have to file a repayment plan under Chapter 13 in order to stop foreclosure of your house.
Chapter 7 Before Notice of Default
Once you file bankruptcy, under any Chapter, even under Chapter 7, the automatic stay prohibits your lender from filing a Notice of Default unless your lender first obtains Court permission to do so.
By that time your lender obtains permission to record a Notice of Default, and then files the Notice of Default giving you the statutory 90 day periods to bring your loan current, you will have received about 5-6 months of relief from the foreclosure process. (In California, your lender cannot foreclose on your house until it files a Notice of Default and then gives you 90 days to bring your loan current, and only then can it file a Notice of Sale setting a sale date of your house.)
If you were only a couple of payments behind, 5-6 months should be enough time to bring your loan current.
A Chapter 7 filing will also eliminate all of your credit card debt and other debt, so you can more easily manage your house loan payments.
Chapter 13 Before or After Notice of Default
If you are several payments behind, a Chapter 7 case generally does not permanently stop foreclosure of your house. Upon the filing a Chapter 7, or shortly thereafter, your lender’s attorney will usually file what is called a Motion for Relief from Stay, requesting that it be permitted to continue the foreclosure proceedings of your house notwithstanding that you file bankruptcy San Diego.
Instead, what you need to do is to file a repayment bankruptcy, such as a Chapter 13, and in that proceeding repay all of your missed payments over time. By repaying all of your missed payments over time, specifically a 3-5 year period, you will bring your house loan current and thus permanently stop foreclosure of your house.
Filing for Chapter 13 protection works whether you file it before or after a Notice of Default has been filed. If you propose a Chapter 13 plan that repays all of your missed payments, and you qualify for Chapter 13 relief and your Chapter 13 plan meets all other statutory requirements for being approved by the San Diego bankruptcy court, your Chapter 13 case will operate to permanently stop foreclosure of your home. Your lender will not even be able to obtain relief from the automatic stay; it will not be permitted to continue the foreclosure of your house.
What About a Loan Modification
A loan modification could theoretically work to stop foreclosure of your home, but here is the problem with loan mods. During the loan modification process, you will always be up against a foreclosure sale date. Your lender will not tell you whether it will continue the sale or take the sale date off calendar until days before the sale. Then, a couple of days before the sale date, your lender will typically continue the sale for 30 days, and in another month you are back up against another sale date.
Because during the loan mod process lenders typically will not continue a foreclosure sale date until just days before the sale, if you are facing a foreclosure a loan mod is both a very stressful and very risk method to try and stop the foreclosure. You could wait until 2 days before the foreclosure sale date only to have your lender decide, on a whim, that it will not continue the foreclosure sale date. Then you have 2 days to try and file a bankruptcy or else lose your home to foreclosure, which is commonly what will happen.
And let’s face it, many institutional lenders are notorious for routinely deny the great majority of loan modification requests. Many lenders deny as much as 95% of all loan mod requests, meaning that you have to be in the lucky 5% to get a loan mod. That’s a risky gamble to take when trying to stop foreclosure of your most valuable asset, your house.
The Most Reliable Solution
Because of the problems and uncertainties with loan modifications, a San Diego bankruptcy filing is the safest and most reliable means for stopping foreclosure of your San Diego property.