A lot of homeowners want to know if bankruptcy can help prevent foreclosure of their real estate property. Yes, bankruptcy can, with a few exemptions, stop foreclosures. The automatic stay under 11 USC 362 provides that the filing of a bankruptcy petition “operates as a stay, applicable to all entities, of” “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate” and “any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title”, among others.
Simply put, all collection efforts, including foreclosures, must stop from the filing of the bankruptcy petition and during the pendency of the bankruptcy case.
Once you have decided whether it makes economic sense to you to keep your house or not, the next step is to determine what type of bankruptcy should you file, i.e., Chapter 7 or Chapter 13 and if you are qualified to avail of such bankruptcy reliefs.
If you file Chapter 7, the automatic stay relief is only temporary, which is usually for a few months. The pendency of a Chapter 7 bankruptcy petition is usually 4-6 months, on the average and as stated above, the protection of the automatic stay lasts only during the pendency of the case. Hence, once the case is closed, the automatic stay is lifted. (For course, unsecured debts and other debts that were discharged in the bankruptcy petition can no longer be collected.) If the creditor files for a motion for relief of stay (to lift the stay), and it is granted, the foreclosure can proceed even when the case is still pending.
If you are current in your mortgage payments (or can get current in your payments) and can continue paying it and your home equity is covered by the applicable homestead exemption, there is a good chance you can keep your residence even if you file Chapter 7 bankruptcy. The automatic homestead exemption for CA is $75,000. For families, the homestead exemption is $100,000.00 provided there is no other family member with a homestead. It is $150,000 for a person 65 years or older or a disabled person.
If your residential equity is above the CA homestead equity, you can consider filing Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, the automatic stay on the foreclosure is permanent if you are qualified to file one and can propose a feasible plan and the court approves such as plan. The plan must show that you have the ability to pay your monthly mortgage payments and arrearages on your mortgage if any, among others. You can also file a motion for lien stripping (or cancel your second mortgages, etc.), which can potentially lower your total monthly mortgage payments.