Filing for bankruptcy does not necessarily mean losing your home. If you live in California, you may be able to keep the property and avoid foreclosure.
Review these considerations if you have fallen behind on your mortgage payments and have considered bankruptcy to protect your home.
The automatic stay
If you file for bankruptcy, the court places an automatic stay on your creditors. This legal action prevents them from attempting to collect your debt, which means they cannot foreclose on your home. Filing for bankruptcy can even stop a scheduled foreclosure sale. The automatic stay does not last forever, but it gives you time to decide how to proceed.
California property exemptions
California has a homestead exemption for bankruptcy. You can keep the home where you live when you file for bankruptcy up to a value of $600,000. If your home is worth more than $600,000, you may have to use part of the equity to repay your creditors. The exemption applies to single-family homes as well as condos, boats and other types of property.
To be eligible for the homestead exemption, you must be able to keep making your mortgage payments, including the past-due balance. You must also have owned the home for at least 1,215 days before you file for bankruptcy.
The foreclosure process takes time in California. The lender must contact you with information about your options to avoid foreclosure at least 30 days before starting the process. At this point, you can investigate the pros and cons of bankruptcy compared to loan modification, short sale or other foreclosure alternatives.