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Bankruptcies and Foreclosures?

Posted on January 21st, 2019 by Oddo & Babat, P.C.

Real Estate Lawyer

It is very common for people who are facing foreclosure on their homes to seek protection declaring bankruptcy may offer them. There is legal protection offered during bankruptcy called an automatic stay The stay starts as soon as the petition for bankruptcy is filed. It works as an automatic injunction, working to protect the debtor from creditor’s attempts to collect debts, file liens, or begin filing legal action against the debtor.

There are cases where the automatic stay won’t work for the debtor. Contact a bankruptcy attorney to clarify which type of bankruptcy you are interested in filing — Chapter 7 or Chapter 13, which will dictate how the automatic stay is applied to your particular case and if there are any exceptions.

Mortgage Expectations and Failure to Meet Those Expectations

When you sign a mortgage on a home, the terms of the contract you are agreeing to upon your signature state that if you fall behind in your mortgage payments, the lender has the right to foreclose on your home. This means that the bank/lender becomes the owner of the home which they will proceed to sell and apply the proceeds to the balance of your loan.

There are federal and state laws pertaining to the procedures that the lender has to follow to take ownership of your home. The formal name is foreclosure.

Before the bank can take your home, they have to allow time for the homeowner to catch up on back payments owed or perhaps apply for a modification in their mortgage. Once the legal amount of time has been given, the bank can move ahead with the foreclosure.

How Does Filing for Bankruptcy Affect Foreclosure Proceedings?

As soon as you file for bankruptcy, the foreclosure proceedings will stop, assuming the bank hasn’t already sold your home. State laws may differ so be sure to check with your bankruptcy attorney as to the specifics in your state.

When you file for Chapter 7 or Chapter 13 bankruptcy, it immediately starts the automatic stay. There is no need for you to do anything else for the stay to begin.

Are there Exceptions to the Automatic Stay Rule?

There are two reasons the automatic stay will not work for you during a bankruptcy.

  • If a bankruptcy case was dismissed within the past year you will only be able to use the automatic stay for 30 days once you file for bankruptcy.
  • If you have had more than two previous bankruptcy cases dismissed within a year you will not be eligible to use the automatic stay at all.

How Does the Automatic Stay Work With Foreclosure Proceedings?

The automatic stay gives you more time to work with a possible foreclosure. How the stay works will depend on what type of bankruptcy you are considering. Consult with an experienced bankruptcy attorney to help you determine whether Chapter 7 or Chapter 13 bankruptcy best fits your situation.

Your lender may file a motion requesting to terminate the automatic stay so that it can go ahead with the foreclosure. You have the right to file a response. If you wish to oppose the motion, a hearing will be held in the bankruptcy court and decide if the stay is terminated or not.

Foreclosure and bankruptcy are two complex legal proceedings that require a foreclosure defense lawyer with the knowledge and experience to guide you through the process, protect your rights, and explain the advantages and consequences of each decision.

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