How Many Mortgage Payments Can You Be Behind Before You Should File For Bankruptcy?
Understanding the Foreclosure Process
Under federal, outside very select exceptions, a mortgage lender is not permitted to begin the foreclosure process until a homeowner is 120 days in default. During this time, the homeowner will receive a breach letter explaining the default and the lender’s intention to accelerate the loan.
Under California law, a mortgage servicer is required to contact the borrower by phone or in-person 30 days before filing a notice of default. The purpose of this is to assess the borrower’s financial situation and explore alternatives to foreclosure.
The nonjudicial foreclosure process begins when the notice of default is recorded at the county’s record office. The notice serves as notification that the borrow has three months to cure the default. If the borrower does not cure the default, a notice of sale will be filed. This notice will include the property address along with the time and location of the sale. The foreclosure sale must be filed at least 20 days after the three-month period ends.
When Should You File For Bankruptcy?
Using the above as a sample timeline, you could miss up to four mortgage payments before a foreclosure could begin. In most cases, the lender will not start the process immediately. For the sake of this example, imagine you are five months behind when the servicer contacts you. A notice of default is then filed and another three months pass. Because you have not cured the entire default, a sheriff sale is scheduled in one month. At the time of the sale date, you are nine months behind on your mortgage. If your monthly payment is $2,800, the total due is $25,200 plus any other fees, attorney costs, and interest.
Filing for Chapter 13 could allow you to save your home. When you file for bankruptcy, a legal wall goes into effect that prohibits any collection actions against you. Therefore, this automatic stay stops the foreclosure and the scheduled sheriff’s sale. Your debt is reorganized in Chapter 13, so you will be permitted to pay your mortgage lender the money you are behind over sixty months. Given the above example, your monthly Chapter 13 payment would be at least $420. This could be higher given your other debt, income, and assets. Our California Chapter 13 bankruptcy lawyers will carefully review the Chapter 13 calculations with you.
In addition to the Chapter 13 payment, you would still be obligated to pay your monthly $2,800 mortgage. By filing earlier in the process, you will decrease the number of months you are behind, lowering your potential Chapter 13 payment. Furthermore, you could avoid additional attorney fees, charges, and costs that you would incur if the foreclosure proceeded to a sheriff’s sale.
Filing For Bankruptcy Allows You to Pursue Other Alternatives
Often, people will advise you that bankruptcy should be the “last resort.” If you are behind on your mortgage payments, there are alternatives. You could apply for a loan modification, a forbearance, or even request a payment plan directly with the mortgage servicer. None of these alternatives are guaranteed. While you go through the application or negotiation process, you will continue to fall further behind on your payments. If the mortgage company denies your application or request, you could find yourself fourteen months behind instead of five or six. This would significantly increase your bankruptcy payment.
When you file for bankruptcy, you are not precluded from pursuing other alternatives. It is not uncommon for a homeowner in a Chapter 13 case to obtain a loan modification. By applying while under bankruptcy protection, you can ensure that you do not incur additional fees or interest. Our Huntington Beach bankruptcy lawyers are available to assist you with the process.
Even with alternatives available, many homeowners discover that there are additional benefits to filing for bankruptcy. In many cases, a homeowner will be able to eliminate a substantial portion of their unsecured debt. By alleviating other financial obligations, it becomes easier to manage their mortgage payment going forward.
Talk to Our Experienced California Bankruptcy Attorney if You Are Behind On Your Mortgage
While it is impossible to give a “one size fits all” answer, it is generally better to file for bankruptcy sooner than later if you fear foreclosure. Our Sacramento bankruptcy lawyers could file a case on the eve of a sheriff’s sale to prevent losing your home. However, we would prefer to develop a proactive plan much earlier in the process. If you fall behind a month or two on your mortgage and feel it is impossible to catch up, contact The Bankruptcy Group at to start working on a feasible plan.