What does bankruptcy do on a foreclosure sale?
Let's take a look at what happens when someone files for bankruptcy. Immediately upon filing for bankruptcy, an automatic suspension takes effect. Automatic suspension is governed by federal law specifically 11 USC § 362. There are a few exceptions to what automatic suspension can and will stop. Specifically, if the debtor has an ongoing bankruptcy that was rejected within the year before the new filing, the automatic stay expires on the 30th day after the new filing. If the debtor has had 2 outstanding bankruptcies in the past year, there is no automatic stay and the debtor must apply for one in bankruptcy court.
Thus, if the debtor has not had a pending bankruptcy case in the previous year, the automatic stay occurs immediately upon filing. This is a very useful tool for the debtor in many ways. First, the sale of the debtor's house through a foreclosure auction is halted. Second, the stay gives the debtor time to regroup and plan for his reorganization plan without risking fear of losing his home.
How Do Mortgage Lawyers Know When To Stop The Sale After Bankruptcy?
After filing for bankruptcy, debtors, including the mortgage company, receive notice of the new filing. This alerts all creditors that an automatic stay may be in place and they must cease collection / legal activities.
What can a mortgage company do to get out of bankruptcy?
If the mortgagee feels they have good cause, the mortgage company can file a petition with the bankruptcy court to request a waiver of automatic stay. The main cases where their request will be granted are when the debtor does not maintain the mortgage payments after the deposit, the debtor does not come up with a reasonable or workable reorganization plan, or the debtor chooses Chapter 7 protection which does not have no one 13 reorganization item.
Time of filing for bankruptcy
The timing of the bankruptcy filing and the foreclosure sale date are two dates to consider carefully. If the foreclosure was registered with the court office, the deadline for filing bankruptcy would be the sale date. If the debtor has not received a foreclosure sale notice, the debtor may have more leeway as to when to file for bankruptcy. If the debtor files after the sale, the chances of saving the property are slim, however, issues with the sale could arise to void the sale.
The foreclosure sale has taken place and the debtor has not stopped it
If there is a deficiency created by foreclosure of the debtor's house, the debtor may face collection attempts for the amount of the deficiency. In this case, a bankruptcy could help the debtor to cope with this new debt.
In summary, does the debtor have to declare bankruptcy to put an end to a seizure?
It is impossible to answer this question because each person's situation will be different. A debtor considering this option should seek advice from a local bankruptcy lawyer, most of whom offer free consultations. The best advice is not to wait until the last minute to consider your options so that the debtor can make the best decision for him and his family.