11 Feb Does filing bankruptcy stop the Trustee Sale of my house? By Atty. Crispin Caday Lozano
If your house is to be foreclosed and there is a pending Trustee Sale date, a very powerful way to stop it is by filing bankruptcy. You need to file it before the Trustee Sale date if you want to keep your house.
Question: What is the best Chapter in bankruptcy should I file?
Answer: If you want to eliminate all your unsecured debts, then Chapter 7 is your best choice. However you need to pass the Means test which will determine if you have a disposable income to pay most of your debts. If you would not qualify for Chapter 7, you will be forced to file Chapter 13 and pay some of your unsecured debts. In any event you can stop the Trustee Sale.
Question: What is the difference between Chapter 7 and Chapter 13?
Answer: The basic difference between the two chapters is in Chapter 7 you will be able to discharge all your unsecured debts whereas in Chapter 13, you will be required to pay a certain percentage of your unsecured debts plus 10% administrative cost. You can keep your house under any of the two chapters as long as you keep paying your monthly mortgage. Statistically very few were able to finish Chapter 13 payment plan. Therefore if you qualify for Chapter 7 it is better to go that way.
Question: How can Chapter 7 help me on my home mortgage?
Answer: By filing Chapter 7 Bankruptcy there is the automatic stay that will stop foreclosure and all collections effort by the lenders until you are given a discharge by the court. During this time you can negotiate with the lender to lower the interest rate and monthly payments and possibly the principal amount. If you have a second mortgage on your house and the house is underwater, the second mortgage has no collateral and you will be personally discharged by filing Chapter 7. This means that the creditor cannot sue you in court because the personal debt is discharged. While a lien on a second mortgage may not be erased in Chapter 7 the second mortgage lender may not be able to foreclose because it has no collateral on the house. Generally the lenders of second mortgage without collateral will just charge off the loan which means the loan is written off in their books.
Question: Will my chance of loan modification improve after filing bankruptcy?
Answer: Your chance of approval on loan modification will improve because the lender knew that by filing bankruptcy your hardship is real and you are ready to move on. Your debt to equity ratio which is one basic consideration in granting loan modification will improve because you eliminated all your unsecured debts. If you filed Chapter 7 you will be able to discharge most of your unsecured debts such as credit cards, department store cards and medical bills. Your cash position will increase immediately and you will now be able to pay your monthly mortgage even if your request for loan modification is not approved.
Note: This is not a legal advice.