Bankruptcy and Foreclosure: How Filing for Bankruptcy Can Impact Your California Home

How Filing for Bankruptcy Can Impact Your California Home

If you’re close to being in foreclosure, then filing for bankruptcy could be a good option for you. This is the relationship between bankruptcy and foreclosure.

Keyword(s): filing for bankruptcy

Foreclosure can be one of the scariest things that someone faces in life. It can result in you being kicked out of your home and all of your possessions thrown in front of your house by the local sheriff. 

In America, this is a cruel reality for a lot of people. There were over 324,000 houses foreclosed in 2022. 

If you are someone that is at risk of facing foreclosure, you do have options. One of those options is filing for bankruptcy. 

Why should you file for bankruptcy? What are the biggest benefits of using this option? 

This is your guide. 

Know the Foreclosure Process

Before we talk about filing for bankruptcy, let’s make sure that you are aware of the foreclosure process in California. This is mainly for you to make sure you know how much time you have to settle this. Plus, you can make sure that everything you have gone through so far is legal. 

In California, foreclosure takes at least 200 days after the first missed payment to enforce. What happens is that you have 120 days to catch up on your payments before you receive a Notice of Default. 

After that, you have about three months before your home gets put up for auction. If you are still not current on your loan payments after 180 days, you will receive a Notice of Trustee Sale. 

That lets you know that your home is going to be put up for auction. The notice has to get sent out at least 20 days before your auction date. So, if you receive this, you have about three weeks to get your affairs in order before your house gets sold. 

While the typical process takes about 200 days if a homeowner fails to pay their debt, there are ways it can get delayed. Sometimes, it can be because of court orders. Other times, it can be taking drastic action, such as filing for bankruptcy. 

Filing for Bankruptcy

After you get a Notice of Trustee Sale, you could start to panic about losing your home. However, there is one thing that you can do to try to delay this sale. 

Believe it or not, filing for bankruptcy can be a way to delay this sale. If your house was supposed to be sold 20 days after you got that notice, what you need to do is file for bankruptcy before the auction date. 

If you do this, then any sale that takes place after you file for bankruptcy is considered void. The reason for this is when it comes to bankruptcy, all of the assets you have at the time that you file would be under this umbrella. 

That means that certain authorities need to review these assets and your financial situation closely. In other words, you may buy an extra six weeks just for this review process. 

Depending on what type of bankruptcy you can qualify for, you may even buy several more years. 

Chapter 13 Bankruptcy

Arguably the best type of bankruptcy you can file in this situation is a Chapter 13 bankruptcy. The reason for this is that under this type of bankruptcy, you could have up to five years to make things right with your lender. 

You see, with this type of bankruptcy, the goal is to come up with a realistic payment plan over a certain time. This period ranges from 3-5 years in most cases. 

Let’s say that you owe $175,000 to a lender. In this situation, the agreement may be for you to pay $120,000 over the course of five years. That could equal a payment of $2,500 per month. 

The catch with this is that for you to qualify for this type of bankruptcy, you have to have some sort of reported income. The reason for this is that your income is used to determine if you can keep up with the agreed-upon payment plan. 

If you are a homeowner that is currently unemployed, this type of bankruptcy can be much more difficult to qualify for. However, the good news is that if you have a job, you can likely qualify as long as your debt is under $2.75 million. 

Other Bankruptcy Options

While Chapter 13 is the best bankruptcy option for this situation, there are a couple of alternatives. However, both of these will come with their catches. 

The first option is Chapter 11. Like Chapter 13, you can come up with a payment plan to pay back your debt in this situation. You can even do so for longer than five years. 

What is the catch? It is a more expensive legal process, and you typically have to pay a higher percentage of your debt. On top of this, you need a majority vote to approve your payment plan here. 

The other option you have is Chapter 7 bankruptcy. What is good about this is that it can stop foreclosure for several months. However, the catch is that this is only temporary, and once the case settles, you can end up right back where you started. 

Sell Your House

You may have successfully filed for bankruptcy and even agreed to a payment plan described above. However, you may realize that you still have a problem coming up with all of the money. 

Your bankruptcy may have bought you a couple of years, but you still need to secure the finances. One option you may consider is selling the home yourself after filing for bankruptcy to get more money for it. 

Click here to get a free offer on your home today.