When a bankruptcy case is filed, an “Automatic Stay” is created preventing creditors from taking certain actions. While the Stay is in effect, creditors cannot demand payment on debts, file lawsuits, collect on judgments through wage garnishment or otherwise, and they cannot continue foreclosures or repossessions.
The Automatic Stay protection exists while a bankruptcy case is open unless the lender removes the Stay by filing a motion. In a Chapter 7 case, the length of time the case is open is usually about four months, which means any foreclosure activity may only be temporarily halted. After the case concludes, the lender can continue the foreclosure from where they left off when the case was filed. If a lender does not want to wait four months, and the loan is in default, they can file a motion to remove the Stay, and get back to the foreclosure sooner. When a motion is filed quickly in a Chapter 7, the Stay may only last about two months. Thus, in Chapter 7 cases, the effect of filing the bankruptcy may only be to delay the foreclosure process for a short time. If the debtor can bring the account current during that time, or work out a modification, the delay can be helpful. If not, the foreclosure will go forward once the Automatic Stay is gone.
In Chapter 13 cases, the debtor has the opportunity to present a plan (reorganization plan) to show the judge, Trustee and creditors how they plan to cure any defaults on secured loans they want to retain, and how much they can pay toward the unsecured debts (such as credit cards, medical bills & utilities). Chapter 13 plans usually last three to five years if the debtor sees them all the way through.
In a foreclosure situation, a Chapter 13 case often proves useful for the debtor because the lender cannot foreclose if the debtor’s Chapter 13 plan is confirmed and the debtor is current on all payments required by the plan. Of course, this also requires the debtor to make all post-filing mortgage payments along with the additional amounts needed to cure the default. Chapter 13 requires steady income that will fund the proposed plan.
When facing possible foreclosure, it is best to discuss your bankruptcy options with an attorney to make sure the case you file will have the intended effect.
For more information or a consultation, please call 661-210-5657, or e-mail: mjf4bk@ca.rr.com.