Many individuals and couples come into our office when their homes are becoming subject to a foreclosure sale. The filing of a bankruptcy can stop the sale of such homes.
The process that occurs in these cases is that the homeowners receive a “Notice of Default” (also known as a NOD) after being s behind on their regular mortgage payment. At that point, if nothing is done, the borrower has ninety (90) days to become current on the mortgage. Then the lender has a right to issue a “Notice of Sale” (also known as a NOS). This Notice of Sale generally states that a property will be sold through a “Trustee Sale” on a given date and time. If the homeowner and lender do not make any other arrangement, the property is usually sold twenty-one (21) days from the Notice of Sale.
The filing of a bankruptcy creates an “Automatic Stay” that stops creditors from taking action against the person filing the bankruptcy (also known as the “Debtor”). This automatic stay stops a foreclosure sale from proceeding.
The automatic stay does not mean the bankruptcy debtor can retain the property without making any payment. For example, the automatic stay in a Chapter 7 case will last only as long as the case stays open. A Chapter 7 case usually only will last approximately three (3) months. At that point, the lender has the right to do anything that it could have done prior to the bankruptcy filing. In a Chapter 13 case, the homeowner has to either (a) pay back all of the back payments through a bankruptcy plan, or (b) obtain a modification of the mortgage.
If the person filing for bankruptcy continues to fail to make mortgage payments, the lender can seek court approval to obtain the property. This is done through the process of filing a motion for relief from the automatic stay. Upon obtaining such relief, the lender can again seek to foreclose on the property as if there was no bankruptcy.
Should you have additional questions on foreclosures, and the protection of bankruptcy, please contact David Henshaw today.