How does bankruptcy stop home foreclosure?
Part 2 – The Automatic Stay: Delaying Foreclosure
Welcome to Part 2 in a 3 part series on how bankruptcy can stop home foreclosure. Part 1 described what foreclosure is. This installment will discuss how, at the time of the filing of a bankruptcy case, an “Automatic Stay” is created that stops all foreclosure activity. At the very moment that you file a bankruptcy, whether or not it’s a Chapter 7, a Chapter 13 or any other type of bankruptcy, an “Automatic Stay” goes into effect. What is that? The Automatic Stay is legal term. In common terms, it is a court order that stops and everyone from doing anything that might affect you, your property, or your income. The really great thing about the Automatic Stay is, that it goes into effect whether or not your creditors even know about it!
Think of it like this: Consider a Dog and his master. When the master wants the dog to sit, he yells, “Stay”! That dog better sit down and be better do nothing, nothing at all, until the master says that it’s ok to move. If the dog moves without the master’s approval, the dog gets in trouble. The bankruptcy stay is just like that! The Bankruptcy Court is the master and all creditors, everywhere, are the dogs. Once your bankruptcy is filed, whether or not they know about it, the creditors are required to sit and to stay. They are prevented from taking any action against you, against any cosigner or against your money, wages or property. They cannot continue any court cases and they cannot continue with foreclosure proceedings unless the master allows them to “get up”. If they do, if they violate the stay and disobey the master, hey can get in serious trouble. Like the dog’s master, Bankruptcy Courts are not kind to those who violate the Automatic Stay.
So, if your home is scheduled for a foreclosure sale, the sale will have to be cancelled or postponed while the bankruptcy stay is pending. The stay remains until the court terminates it or the case is closed. There are two exceptions to this general rule. While a dog who desperately wants to go dig up that bone cannot speak and cannot hire a lawyer to convince his master to release him, (but, wouldn’t it be cool if they could?) a mortgage lender can, and often does, hire a lawyer to do that to ask the court to terminate the stay. If they do, the debtor’s attorney has the ability to object to that motion and delay the process until the Bankruptcy Court can schedule a hearing on the Creditor’s motion. That hearing can take a month to schedule, and often these motions take a month or several months to reach a final decision.
If the debtor files a Chapter 7, Liquidation case, the mortgage loan debt will be eventually be discharged. Typically, the Chapter 7 discharge is received within 3 months or so. The court’s discharge order will prevent the lender from ever collecting any money, but it does not prevent the foreclosure. Once the discharge order is entered and the case is closed, the creditor can proceed with foreclosure, if it chooses. If requested, the Bankruptcy Court will generally terminate the Stay within 1 to 3 months after the case is filed, if the lender doesn’t file the motion to terminate the stay, the stay could be lifted automatically within days of the discharge.
If the debtor files a Chapter 13 Reorganization case, the debtor can propose a “Plan” to repay his or her debts, catch up on or “cure” any delinquencies in the mortgage loan that led to the foreclosure in the first place and permanently halt the foreclosure process. In a Chapter 13 case, if the debtor proposes to keep the collateral, and has proposed a plan to repay and cure in good faith, the automatic stay will remain in place until the case is fully completed. Chapter 13 cases are generally 3 to 5 years long and if the debtor successfully completes the plan, the Note that cause the foreclosure will be deemed to be fully current and have no delinquencies. At that point, the Note is no longer in “default” and the lender will not have lawful authority to foreclose anymore. Come back next week, when we discuss how bankruptcy can help eliminate a 2nd or 3rd mortgage on your home.
The decision to file a bankruptcy or to pursue other alternatives to foreclosure is a complicated one. For that reason, it is important to get the expert help that you need from the attorneys at Resnick & Moss, P.C. to help you make the right choices and achieve the best outcomes. If you think that you may be facing foreclosure, or you have more than one mortgage on your home and cannot make your payments, please do not hesitate to call, Resnick & Moss, P.C. (248) 642-5400 for a free telephone consultation or contact us now.