Bankruptcy and Foreclosure

If you are facing foreclosure of your home bankruptcy will stop the foreclosure in its tracks. However the creditor may ask the court to allow the foreclosure proceedings to continue. At a minimum you can buy time by temporarily stopping the foreclosure, often for three months or longer.  You are granted this period of time due to the imposition of the Automatic Stay, which goes into effect immediately once your bankruptcy case is filed.

It’s important to note, however, that Chapter 7 bankruptcy will only provide a temporary shield for your home.  If you wish to stay in your home for the long run you’ll have to continue to make your monthly mortgage payments.  This holds true before, during, and after the resolution of your bankruptcy case.  Also, if you’re behind on your payments you’ll have to make up the back payments in order to avoid foreclosure.

Homeowners should also be aware that Chapter 7 may not be their best option if they have a lot of equity in their home.  The more equity you possess, the more likely it is that that equity will fall outside an allowed exemption (such as the Homestead exemption).  If you have a lot of equity not covered by an exemption, your home could be at risk if you file for Chapter 7 bankruptcy protection.  

It should be noted that the intersection of bankruptcy and foreclosure laws are sometimes quite complex.  This is largely due to the difficulties inherent in calculating how much equity you actually own and in applying the relevant exemptions available to you in order to maximize the likelihood you’ll be able to stay in your home.  

Another reason why complexities arise when bankruptcy and foreclosure intersect is that California is a Community Property state.  In community property states all property obtained during marriage is property of the whole (or community).  This means that both spouses have an equal share in the property and an equal say in matters pertaining to its disposition.  This can be a thorny issue when only one spouse wants to file for bankruptcy.  

If you happen to own more than one home, the application of exemptions to suit your case can also be complex.  As a Sacramento bankruptcy attorney, I often counsel clients who own multiple homes and wish to protect the equity in a dwelling that is not their primary residence.  These can be tricky cases, but the important thing to note is that you can have a measure of control over the disposition of your assets in a Chapter 7 case through the strategic use of allowable exemptions.