Hi, this is Derik Lewis with Lawyers Realty Group where we are Southern California’s leading short sale team. I wanted to go over some quick items with bankruptcy. You can file a chapter 7 or a chapter 13, and you can go to the US Trusties website or the bankruptcy court for more information. In a nutshell, a chapter 7 is a complete liquidation. Essentially you are wiping out all your debt.
A chapter 13 is basically a reorg. Where you gather the information on all your unsecured creditors and any amount you have over your necessities in income, you are going to allow towards those creditors for a period of time, typically between 3 to 5 years. If you complete that plan, the rest is wiped out and forgiven and you get to be discharged from those. In a 13, you can actually take a second lien holder that’s completely underwater, you can tell the court you would like that lien to be stripped from the property and you want that creditor to be thrown in the pile with the other unsecured creditors. You’ll pay them what you can over the amount that you need for necessities and after 3 to 5 years it will be discharged. I will say that some people don’t qualify because they make too much for a 7 and they are forced into a 13.
Most questions I’m getting are about when to file and how bankruptcy affects a foreclosure. You can file on an emergency basis, technically on the morning of a foreclosure. I say technically, because I wouldn’t advise anyone to do that. Although the law is clear that if a bankruptcy is filed that day before the auction occurs, it would invalidate it. It’s too dangerous, so if you’re looking to postpone that sale, protect assets or protect yourself against liability, you’ll want to have everything in order to file at least two business days before. It will stop the foreclosure; the lender has the right if they choose to ask for a relief from the stay. The stay is the automatic stay that goes into place when you file for bankruptcy. That stay stops everything from occurring. If they ask for a relief, then they can proceed with the foreclosure. We’re seeing this happen, so it’s not a failsafe to stop it for the entire bankruptcy process, but it will stop it and slow them down.
I’ve mentioned before that bankruptcy is not an alternative to foreclosure because at the end of the day when you get your discharge or they get a relief from stay, they’re going to continue with foreclosure, so you have to find a way to address that.
We work in coordination with bankruptcy filing, then we reach out as your lawyer to the lender and we start discussing early on the opportunity for a short sale after you’re discharged. Not only does this buy you extra time after the foreclosure is over, but it also gives you all the benefits we talked about before having the short sale. It gives you a little extra time; it’s lighter on the credit, etc… It’s much more beneficial to have a short sale post-bankruptcy than to have the foreclosure on your record. You certainly don’t want to have an eviction.
Those are my general thoughts about bankruptcy, even though they don’t go in depth. We have some more information on the website, lawyersrealtygroup.com, where we are Southern California’s leading short sale team. You can always submit questions to me through the website and I personally deal with them. Remember, your lender has a lawyer and you should too.