Chapter 7 Bankruptcy

Chapter 7 bankruptcy is often a more popular choice for homeowners trying to delay a foreclosure rather than permanently block it. Chapter 7 is called a liquidation bankruptcy because the court might have to sell some of your property (by property, we are referring to more than just your home, basically your real tangible assets) to satisfy your creditors, but in return you walk away debt free. Certain property are off limits to being sold according to California’s bankruptcy exemption laws, items deemed as necessities of life such as furniture, clothing, personal effects, tools of the trade, cars, books, TV’s, and computers for example. There are two sets of exemptions for a bankruptcy in California. A filer must choose which exemption laws they will utilize, one or the other.  The two sets of bankruptcy exemptions can be found under California Code of Civil Procedure 704.010 and California Code of Civil Procedure 703.140.

Homeowners are also allowed to keep some of the equity in their homes. The exemption if the bankruptcy filer is single and not disabled, is up to $50,000 for real property, mobile home, apartment, boat condominium or stock cooperative. If one of the family members does not have a homestead the limit is raised to $75,000. If the filer is 65 or older, or if they are mentally or physically disabled the limit goes up to $150,000. The $150,000 limit also applies if the filer is 55 or older, single and earning less than $15,000 per month, or married and earning under $20,000.

Chapter 7 Bankruptcy to Delay a Foreclosure

Filing for bankruptcy puts an immediate stop to a foreclosure since the court will issue a stay (an order that delays) that prevents all of your creditors from collecting on any debt that you owe, including mortgage payments. If a homeowner has decided that it is acceptable to give up his home and is looking for temporary relief from being foreclosed on, this is a good delay tactic to employ since it will postpone foreclosure proceedings for two to four months. Once you have come out of bankruptcy, you will also have most if not all of your debts permanently cancelled.

Chapter 7 Bankruptcy to Save Your Home

In order to use a Chapter 7 bankruptcy to save your home from foreclosure you must be current on your mortgage payments and you must make certain that the amount of equity in your home falls within the exemption limits according to California law. If the amount of equity exceeds those limits your home may be sold to satisfy your creditors. Once you file, be aware that you will probably not be able to back out since the interests of your creditors must be protected.

Details to Consider

A Chapter 7 bankruptcy takes about three to four months in court. Foreclosure proceedings will restart after the case is finished unless you can get rid of your debt and arrange to keep your house through the use of the bankruptcy. You can further postpone a foreclosure if you are married and each of you file separately, the second spouse filing after the first one has finished. You can then top it off by filing for a Chapter 13 bankruptcy which would add another six months of relief.

In California, before a foreclosure sale can happen the lender must issue a notice of default 90 days prior. A bankruptcy filing does not disrupt the 90 day window but actually only delays the sale itself. To maximize the delay of a foreclosure sale, a homeowner should file for bankruptcy after a foreclosure sale has been scheduled.

Overview of the Timeline

Before you are allowed to file for a Chapter 7 bankruptcy, you will be required to attend credit counseling. About a month after you file, a creditor’s meeting will be held. Approximately 45 days after the creditor’s meeting, you will be required to attend budget counseling. 60 days after the creditor’s meeting, the court approves the discharge of your debts.

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