Foreclosure and Bankruptcy - How does it work?

The Bankruptcy system has a core set of rules that judges, creditors and all other parties must work within, and that is the Bankruptcy Code. The Bankruptcy Code is Federal Law, and has certain protections for people who are at risk of losing their home, business or other realty due to defaults to banks or other lenders. When a person defaults on their debt obligations for realty, the foreclosure process will start with letters and phone calls as your lender tries to discern whether the problem that you are facing is temporary, or whether it is more serious. Some lenders will agree to work with you, especially since the financial crisis of 2008. Always ask if there are any programs that could assist with the financial hardship you are facing. California has a program entitled, Keep Your Home California ( ) that has been useful for many homeowners who are temporarily unemployed.

When you've defaulted on a mortgage, all avenues should be pursued to prevent the bank or lender from actually filing that Notice of Default with the County Recorder's office in your county. If the home has equity, then some of the traditional avenues for refinance may be available. Depending on your age, and financial goals, a reverse mortgage may be worth considering. If there is no equity, or the property is worth less than you owe, a mortgage modification application is advisable. Your lender will likely have a web site that has the process broken down, with some of the necessary forms available online. There are agencies such as Making Home Affordable and the Neighborhood Assistance Corporation of America ( ), or NACA that assist homeowners through the modification process.

Bankruptcy is also a tool that can be useful when facing foreclosure challenges. If a person has tried a mortgage modification and been turned down, or found to be ineligible in the other possible foreclosure relief alternatives, then a bankruptcy filing will put a halt to the foreclosure process from moving forward. Foreclosure in the State of California takes about 111 days, from the recorded Notice of Default. You know when you receive this, as it has an area for recording in the upper right hand corner, and it will come to the home by regular and certified mail. Once the Notice of Default is recorded, there is a 90 day waiting period. If a bankruptcy case is filed during this 90 days, a provision in the Bankruptcy Code called the Automatic Stay prevents any further foreclosure action for a certain period of time. The timeline that the Automatic Stay is effective to prevent foreclosure is different for each situation, and depending on the facts of the case. Usually at a minimum, if a bankruptcy is properly filed, a person will be given 30 to 60 days, or longer depending on the actions of the lender in your bankruptcy case.

Many people do wait longer than the Notice of Default period to file a bankruptcy case. If the filing of the case is delayed, then the Notice of Trustee will be recorded after the 90 days has transpired. The Notice of Trustee sale will have a auction date in the document. This document will also have other important information that can be useful in gaining necessary information later in the case.

When considering whether bankruptcy is going to assist with a foreclosure situation, the short and long term goals need to be considered. The most useful tool for a person going through this situation are the free services offered by attorneys. There are many attorneys who give free consultations, and education may be the key when determining the best course of action. When finding an attorney, be sure to look any attorney up with the State Bar of California, to ensure that the person that you choose to spend your time speaking to, and relying upon, has been practicing for a number of years, and has not had any significant violations with the bar association.