Despite the passage of the creditor-friendly Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the Bankruptcy code is a powerful tool in the foreclosure defense arsenal. Bankruptcy can be used as your main strategy or as your last resort. The filing of a bankruptcy petition automatically freezes or “enjoins” the foreclosure sale in most cases and buys you some breathing room. Bankruptcy can be used to eliminate or “discharge debt,” avoid liens on your property; reorganize your debts or both. Truth in Lending violations, payment disputes and litigation can be pursued while you are under the protection of the bankruptcy court. The bankruptcy system is set up to give you a fair shot at saving your home or to give you a “fresh start” if you can’t.
By working with a Murrieta bankruptcy attorney you can utilize this powerful tool to your advantage if you are facing foreclosure. At the Murrieta law Office; we are experienced in dealing with bankruptcy as a foreclosure defense. Headed by attorney the best bankruptcy attorneys in Murrieta, we have the knowledge and the resources necessary to help. We help clients throughout California from our offices in Murrieta County we also service all of Riverside County.
There is no question that a skilled lawyer can make all the difference in your financial future. At our bankruptcy attorney Murrieta office, our commitment is to helping our clients reach their financial goals.
How a Murrieta Bankruptcy Lawyer Can Help
Whether you are looking to file a Chapter 7 or Chapter 13, a lawyer will be essential in offering you legal counsel regarding filing for bankruptcy in Murrieta Your lawyer can help you determine which form of bankruptcy you qualify for and will be best for your financial future. When you decide to file a Chapter 7 or 13, your attorney can then help you file the petition and follow through with it.
There are two primary foreclosure-related benefits to Chapter 7: the “discharge” that wipes out your personal liability to pay debts which occurs at the end of the 4 to 5 month case, and the “automatic stay” which may freeze or postpone a foreclosure sale until the case is over or sooner, if the judge so orders.
CHAPTER 7 BANKRUPTCY MURRIETA
Chapter 7 is a “liquidation” chapter that typically ends when you receive a “discharge” of your personal liability to pay debts. Not all debts are wiped out and exceptions include student loans, alimony and some income taxes. Eligibility for Chapter 7 is often driven by your last 6 months’ income. If your income is below the median in your state or if your debts are mostly from business, you are generally eligible for Chapter 7. Even if your income is higher than the median, you may still qualify for Chapter 7 if you can pass the new “means test”. The means test is a statutory maze of income and expense calculations, composed of real and IRS created standards, used to determine if you have the ability to pay back some of your unsecured debt over 5 year repayment plan. If you fail the means test, you typically have to use Chapter 11 or 13 to get any bankruptcy relief. Your bankruptcy attorney can advise you on which is the best way to navigate through your situation.
In addition to the means test, a liquidation test has to be satisfied unless you want to risk losing unprotected assets. In Chapter 7, a trustee serves as liquidator of unencumbered and “non-exempt” assets. In theory, the trustee can sell assets
for the benefit of the creditors. In practice, however liquidation is rare. Chapter 7 Trustees do not sell properties that have no equity, such as a house that is worth less than the sum of the loan balances. Most assets are encumbered by liens or are legally “exempt” from sale, preventing the trustee from liquidating. If there is a pending foreclosure, most matters are considered to be “no asset” cases.
Assuming you receive a “discharge” before your foreclosure sale, you remain the owner of the home even after the Chapter 7. You are still free to sell it, save it or let it go to auction. Whether you keep the home or let it go to foreclosure sale, your personal liability to pay the mortgage debt and any income taxes related to that debt is legally wiped out. After the Chapter 7, the lender still has the right to foreclose and try to get paid out of the proceeds of any sale of the property, but they cannot come after you or your future earnings or assets.
Under the best case scenario, filing a Chapter 7 freezes a foreclosure sale until the case ends and a “discharge” is ordered, typically in 4 or 5 months. However, there are exceptions. If you had another bankruptcy dismissed within the last year, the automatic stay only lasts for 30 days. If you had two cases dismissed, there is no automatic stay in the third case. If your case is “dismissed”, the automatic stay is terminated and the lender is free to resume the foreclosure process where they left off.
Most lenders will attempt to have the automatic stay “lifted” before the end of a Chapter 7. They will ask the judge for permission to proceed with the foreclosure sale before the end of the case and claim that they are not being “adequately protected” (i.e. they are not receiving monthly payments during the case). Generally, the judge will not lift the automatic stay or allow the foreclosure if the borrower agrees to resume the regular mortgage payment for the remainder of the Chapter 7. If the lender has violated the Truth In Lending Act (TILA), the borrower and his or her attorney can raise this as a defense to the motion. Most importantly, a hearing on a lender’s motion for relief of stay is a great opportunity to discuss Loan Modification directly with the lender’s attorney.
It is important to know on what date a postponed foreclosure sale is re-scheduled. A Chapter 7 filing generally postpones a scheduled foreclosure sale for about a month. After that month, if the automatic stay is still in place, the lender continues to subsequently postpone the sale into the future. Whether it lasts one or five months, eventually, the automatic stay will terminate. There are special rules if the foreclosure sale date is postponed by bankruptcy; no further written notice is required to sell the property. On the original day of the foreclosure sale, the lender is only required to orally announce the new sale date. If you are out of bankruptcy on that new date, your house can be sold without further notice.
Unless a settlement or loan modification has been reached, completing a Chapter 7 case does not end the foreclosure process. However, the Chapter 7 does buy additional time to continue to pursue a loan modification, to increase your income or find a short sale buyer. Furthermore, a Chapter 7 “discharge” reduces your unsecured debt burden and improves your negotiating position with your second mortgage company. Credit card companies, auto finances and mortgage lenders can no longer sue you. Whether the property is sold at auction or short sale, you will no longer have any personal obligation to pay back your debts or any resulting income tax to the IRS.
CHAPTER 13 BANKRUPTCY MURRIETA
Chapter 13 may be an option if you are facing a foreclosure. By filing a petition for Chapter 13 bankruptcy, foreclosure proceedings will automatically be stayed (stopped, delayed).
Chapter 13 is the “reorganization” chapter of the Bankruptcy code wherein you propose a “plan” for restructuring your debts. This is often referred to as “Individual Debt Adjustment” or “wage earner’s plan.” Chapter 13 serves to protect the debtor’s property from liquidation, as would occur in a Chapter 7 bankruptcy. The debtor is required to pay bills over a specified period of time, usually 3 to 5 years. During that time, creditors are restricted from pursuing collections, including contact, lawsuits and more. Foreclosure proceedings may also be stayed.
An individual with regular income may be eligible for a Chapter 13, even if he or she is self employed or operates an unincorporated business. A corporation or partnership is not eligible for Chapter 13. If you are an individual with less than $307,675 in unsecured debt and less than $922,975 in secured debt, you may be eligible to file for Chapter 13. Additionally, you must have received credit counseling from an approved agency within 180 days before filing.
Chapter 13 has many benefits to an individual who chooses to petition for this form of bankruptcy. First and foremost, it will stay foreclosure proceedings and may allow for you to pay delinquent mortgage payments over time. Creditors will be unable to contact you or harass you about the money that you owe, and creditors will be prohibited from filing lawsuits against you or starting any other collection processes. Chapter 13 may be better for cosigners as well, offering them more protection than Chapter 7 proceedings.
A Chapter 13 acts like a consolidation loan, wherein the debtor makes a single payment to a Chapter 13 trustee. The trustee then distributes payments to different creditors accordingly. This payment is typically calculated as a net cash surplus. For instance, if you make $4,000 per month and use $3,500 for your living expenses, you may be required to pay that remaining $500 to the Chapter 13 trustee in order to pay the creditors. This payment plan will usually last 3 to 5 years.
Filing a petition with Bankruptcy Court for Chapter 13 is complex. A great deal of financial information is needed and it can be difficult to know what you will need to provide the Court with. By working with an attorney, you can ensure that your petition is filed properly and that you have the best chance at a brighter future. Thank you for visiting our post-bankruptcy attorney Murrieta.
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