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Can You Keep Your House in a Chapter 13 Bankruptcy in CA?
The short answer to this question is yes: under the right circumstances, filing for Chapter 13 with strategic timing will allow the filer to retain his or her property and avoid being foreclosed on. The long answer, of course, is more detailed.
There are numerous chapters (types) of bankruptcy, but most Californians end up filing under Chapter 7, which involves liquidation of assets, or Chapter 13, which instead focuses on reorganization or creditor repayment. It is critical to emphasize that filing for Chapter 7 bankruptcy will not prevent foreclosure from occurring.
While a feature of Chapter 7 known as the “automatic stay” can postpone foreclosure, the proceedings will continue once the case is over. Moreover, there are circumstances under which a lender could conceivably persuade the bankruptcy court to lift the automatic stay, thus depriving the debtor of its protection. While Chapter 7 bankruptcy can be immensely beneficial for the right filer in that numerous debts are discharged after a short time period, it is generally not the ideal approach for homeowners concerned about foreclosure. An experienced Roseville Chapter 7 lawyer can help you understand how you would be affected by filing under various chapters, and which type of bankruptcy is right for your situation.
The only way to save your home from foreclosure through bankruptcy is by filing under Chapter 13. If you are a resident of Roseville, Folsom, or Sacramento, you will generally file your Chapter 13 petition with the Sacramento Division of the United States Bankruptcy Court for the Eastern District of California, which is located in the Robert T. Matsui United States Courthouse in downtown Sacramento, for a filing fee of $310 (which includes a $235 filing fee in addition to an administrative fee of $75).
But why does Chapter 13 stop foreclosure, while Chapter 7 doesn’t? The answer lies with the process involved in each type of bankruptcy.
When you file for Chapter 7 in California, most of your debts, including medical debt, credit card debt, and various debts arising from personal loans, can be quickly discharged provided you abide by all bankruptcy regulations and the rules of the bankruptcy court. This means you are no longer responsible for paying the discharged debts. However, a court official called a “trustee” will sell some of your property, excluding property you’ve protected using System 1 or System 2 of California’s bankruptcy exemptions. That doesn’t necessarily mean the trustee will sell your house, particularly if you have no equity; but keep in mind that, once the bankruptcy is over, the lender will still have a lien on your home, even though your liability for the mortgage has been eliminated. That means the lender can still foreclose on your home, despite the discharge you received from the bankruptcy court.
Chapter 13 works differently, and therefore, has a different impact on foreclosure proceedings. When a debtor declares Chapter 13 in California, he or she is required to propose a long-term reorganization plan, which essentially establishes a three- to five-year course of monthly payments that the filer will make toward his or her creditors, starting with secured creditors.
Significantly, you can catch up on mortgage arrears (also called “arrearages”) by making payments as part of your Chapter 13 plan. In other words, Chapter 13 gives the filer anywhere from three to five years, depending on his or her financial circumstances, to catch up on his or her missed mortgage payments. If you can remain current on your mortgage payments going forward, and make up for the payments you have missed, you can save your home from being foreclosed upon.
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