Chapter 13 bankruptcy can Stop House Foreclosure

Chapter 13 is a way to stop foreclosure, save your Home and catch up on the mortgage

Life happens. There’s a medical emergency, job loss, or some other unexpected situation and next thing you know, you can’t afford your mortgage payments. The mortgage company gives a Notice of Default, and then a Notice of Sale, and your home is in foreclosure. There’s a way to stop it and save the house.

In August 2005, just before the bankruptcy laws changed, I wrote in this space that there was a perfect storm brewing for the average consumer.  Since then, the bankruptcy laws have changes, and indeed, it is harder — but not impossible — to get a fresh start.

One area where we can get into debt trouble and feel a financial squeeze is with regard to mortgage payments.  The past few years, property values have been rising here in Southern California.  This has led to many people to refinance their homes and take “cash out” — in essence using their house as an ATM.  The result of this is that it leads to less equity and a higher mortgage payment.

What happens if these homes with tapped out equity drop in value?  We’re conditioned to believe that property values only go up Up UP! in Southern California.  However, in 1989-1991, the real estate market peaked, leading to dropping property values.  The result is that many people were “upside down” in their homes, meaning that that they owed more than it was worth.  We expect this from a car loan since a car almost always depreciates faster than we can pay it off.  But with a house?  Yikes.

Some experts believe that history may be repeating itself. Recently, economics experts are looking at reliable benchmarks like Price-to-Income Ratios and Price-to-Rent ratios and noting that home value are much higher than normal levels.  Even houses in your neighborhood are no longer selling within the same week they’re listed with someone offering $10,000 over the listing price.  Instead, we’re seeing “Reduced!” signs nailed onto those For Sale signs, and reading advice like that in the Los Angeles Daily News suggesting that you list your home in the lower 25% as related to the comparable homes in the neighborhood.  Is there a real estate bubble which will shortly burst, or is the housing market temporarily resting before it continues upwards and onwards?  No one knows for sure.

If you find yourself in the awful situation where you fall one or two payments behind on the mortgage, there is still hope to stop foreclosure.  A Chapter 13 bankruptcy might be the solution.  This option allows you to get some “breathing room,” stop the collection calls and headaches, and even stop a foreclosure.  People can fall a few months behind, they want to catch up but the lender won’t accept anything but a massive lump sum payment that the troubled homeowner doesn’t have.  A Chapter 13 case can allow you to catch your breath as you demonstrate how you will catch up on your past due mortgage payments, but on a schedule you can actually stick to and afford.  This very helpful type of bankruptcy allows you to reorganize your debt and save your house in Southern California and stop foreclosure.

Even for people who don’t have a home, a Chapter 13 bankruptcy can provide a light at the end of the tunnel.  It can provide a way to pay what you can afford, and in return, stop lawsuits, wage garnishments, collection headaches and yes, even foreclosures. And then, yes, you can be debt-free in three or five years.  That time will tick off the calendar either way… why not be out of debt in that span?

So, just because you’re a payment or three behind on that car or home and don’t think you can stop the house foreclosure, don’t lose faith.  There is a way to get some space and time to catch your breath.  You can be out of debt and most importantly, save your home.  Sometimes, bad things happen to good people.  We don’t intend for things to work out the way they do.  But when “life happens” and there is an unanticipated debt problem, when you’re ready to solve it then a Chapter 13 bankruptcy can be the solution to your problem.

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Hale Andrew Antico (aka Attorney Antico) is an attorney who specializes in consumer finance.