What does bankruptcy do to a foreclosure sale?
Let’s take a look at what happens when someone files for bankruptcy. Immediately upon filing for bankruptcy, an automatic stay goes into effect. The automatic stay is governed by federal law specifically 11 USC § 362. There are some exceptions to what the automatic stay can and will stop. In particular, if the debtor has a pending bankruptcy that has been dismissed within 1 year of the new filing, the automatic stay expires on the 30th day after the new filing. If the debtor has had 2 pending bankruptcies in the past year, there is no automatic stay and the debtor must apply to the bankruptcy court for one.
Therefore, if the debtor has not had a pending bankruptcy case in the past year, the automatic stay kicks in immediately at the time of filing. This is a very useful tool for the debtor in many ways. First, the sale of the debtor’s home through a foreclosure auction is stopped. Second, the stay gives the debtor time to regroup and chart a path forward through their reorganization plan without the threat of having to worry about losing their home.
How do the lawyers for the mortgage company know to stop the sale after bankruptcy?
After the bankruptcy filing, debtor creditors, including the mortgage company, are notified of the new filing. This alerts all creditors that there may be an automatic stay and collection/legal activities must cease.
What can the mortgage company do to get out of bankruptcy?
If the mortgagee believes it has cause, the mortgage company can file a motion with the bankruptcy court requesting a waiver of the automatic stay. The main instances in which your motion will be granted are when the debtor fails to maintain mortgage payments after filing, the debtor does not file a reasonable or workable reorganization plan, or the debtor elects Chapter 7 protection that does not have a reorganization component as with at 13
Time of bankruptcy filing
The time of bankruptcy filing and the foreclosure sale date are two dates to consider carefully. If the foreclosure has been filed with the clerk’s office, the bankruptcy filing deadline would be the date of sale. If the debtor has not received notice of a foreclosure sale, the debtor may have more leeway as to the timing of their bankruptcy filing. If the debtor files the application after the sale has been completed, the probability of saving the property is slim; however, problems with the sale could arise to void the sale.
The foreclosure sale occurred and the debtor did not stop it
If there is a deficiency created by the foreclosure of the debtor’s home, the debtor may face collection attempts for the amount of the deficiency. In this case, a bankruptcy could help the debtor to face that new debt.
In short, if the debtor files for bankruptcy to stop a foreclosure
This question is one that cannot be answered because everyone’s situation is going to be different. A debtor considering this option should seek the advice of a local bankruptcy attorney, most of whom offer free consultations. The best advice is not to wait until the last minute to see his options so that the debtor can make the best decision for himself and his family.