If you’ve missed more than three payments, the lender can issue a Notice of Default. Once a lender issues a notice of default under California state law, you have the right to cure in a lump sum, so you can reinstate the loan by paying the arrears in a lump sum. A lot of people don’t have the means to do that. The lender has to wait 90 days and they can then issue what’s called a Notice of Trustee’s Fail assigning a specific date that the property will be sold on. As long as you file the bankruptcy no later than the day before the foreclosure’s sale, the Chapter 13 will stop the foreclosure’s sale.
What happens with foreclosure; is that when they start considering Chapter 13?
Foreclosure is state specific, it varies state to state. California is what we call a non-judicial foreclosure state, meaning that the lender does not have to sue you to foreclose on you. Instead of mortgages in California, we have what are called Fugitive Trust. And what that means is there is a trustee who is appointed by the lender that will conduct the foreclosure sale. So, in California, it’s a two-step process. The first step is the issuance of the Notice of Default, which is a notice that you have defaulted on your mortgage and your lender intends to foreclose on you. That usually is issued if you are 90 days delinquent.
Chapter 13 bankruptcy protects someone from foreclosure on their home if they uphold their end of the payment plan.
As far as foreclosure prevention in a Chapter 13, usually what will happen is you will file a plan with what’s called the cleared and maintained provision, meaning you’re going to maintain monthly payments on your mortgage and you’re going to cure the arrears through the plan of re-organization. So, beginning the month after you file the bankruptcy, you will be resumed your pre-default regular monthly mortgage payments and then, you will make the bankruptcy plan payment which will go to clearing the arrears on the property and the theory is if you make it all the way through 3 to 5 years of your bankruptcy plan, then at that point, you obtain your discharge and your mortgage is current because you’ve been making the payments and the trustee’s paid back the arrears.
Pro Se filers have to credit your account with whatever they receive while you were in bankruptcy, assuming you made up that far but they can then continue garnishing you, continue suing you and continue collecting the debt. So, it’s very important to make it to discharge. And a lot of people don’t make it that far. Especially, the Pro Se Filers.