Timing your bankruptcy filing right can give you more time in your home before surrendering it to your lender.
Make Sure You Really Need or Want to Surrender Your Home
Bankruptcy can be a very effective tool in saving your home from a pending or threatened foreclosure. Chapter 7 “straight bankruptcy” can permanently discharge (legally write off) all or most of your other debts so that you can concentrate your financial resources on your home. Chapter 13 “adjustment of debts” can give you years to catch up on back mortgage payments, may “strip” a second mortgage off your home’s title, and give you a very effective way of dealing with judgment, tax, and other liens on the home.
So if you have resigned yourself to giving up your home but have not yet talked to a bankruptcy attorney about your options, there’s a chance that you could stay in the home after all.
But You May Indeed Be Ready to Leave
In spite of all the potential benefits of Chapter 7 and Chapter 13, for lots of reasons hanging onto your home may not be your best option.
But be sure to make that decision with the help of an experienced and conscientious bankruptcy attorney, for two reasons:
- You simply can’t assume that you understand your legal options—about keeping your home or about anything else related to your debts and finances—without getting legal advice about them. Your financial life—whether seemingly simple or complicated—involves numerous legal issues, some of which you may well not even be aware of, much less have a clear understanding about. It is only sensible to get the counsel of someone who has spent many years of training and experience preparing to help you with your own unique situation.
- You very likely have better and worse ways to surrender the house. So it is often extremely worthwhile to get legal advice about the best game plan for the surrender. Today’s blog post addresses this about timing, but it can only do so in general terms. Again, you need your own attorney to familiarize him or herself with your unique situation and to work with you to create your personal game plan.
The Power and Limitations of the “Automatic Stay”
The “automatic stay” of bankruptcy is the protection you and your assets receive from your creditors the moment you file your bankruptcy case (either Chapter 7 or 13—or the more unusual Chapter 11 or 12 for businesses, farmers, and fishermen). It is this protection which stops a foreclosing mortgage lender from proceeding with a foreclosure, at least for a limited time.
This stopping of a foreclosure and potential prevention of a newly scheduled foreclosure is effective as long as the bankruptcy case is open, or more precisely, until the bankruptcy court grants a discharge (legal write-off) of debts. That happens about 3 to 4 months after the filing of a conventional Chapter 7 case and 3 to 5 years after the filing of a Chapter 13 case. So at the very least, the mortgage lender can resume foreclosing after the automatic stay is no longer in effect.
But the automatic stay protection can be cut short by being challenged by the mortgage lender. It can file a “motion for relief from stay” or “motion to lift stay,” and can do so at any time after the filing of your bankruptcy case. This is especially likely to happen if you show no intent to pay for and keep your home.
As a result, how long you can stay in your home depends on the aggressiveness of your mortgage lender in filing such a motion, and on state laws about how quickly the foreclosure procedure could be re-started and completed. (This is true whether the foreclosure is a non-judicial one by “notice and sale,” or a judicial one involving a lawsuit.)
Taking Maximum Advantage of the Automatic Stay Protection
If you want to maximize how long you can be in the home (so that you can save money for your move), usually you don’t want to file your bankruptcy case too early, long before your scheduled foreclosure sale or court date. That’s because if you do, your mortgage lender may be able to file its motion and get the court to lift the automatic stay BEFORE the scheduled foreclosure sale or court date, and thus allow that sale or court hearing to take place.
This would gain you no additional time at all. That’s fine if you are ready to move, but not if you need more time to scrape up money for first and last months’ of rent, a security deposit, moving expenses and such.
It’s usually better to wait to file until right before the foreclosure sale or court date, to ensure that the foreclosure is stopped. But that’s not necessarily the best time.
The precisely best time to file to gain the most time depends on your state’s foreclosure laws and on the specific facts of your case. For example, some state’s laws allow for a quicker follow-up foreclosure after getting relief from stay IF the initial foreclosure procedure went past a particular step in the procedure. So your bankruptcy filing may actually buy you more time if it is filed earlier, before that step in the procedure, thus making the resumed foreclosure procedure take longer.
A Lesson in the Benefits of Legal Advice
Notice the references in the last several paragraphs to state foreclosure law. Bankruptcy and the automatic stay are federal law. Foreclosure—and property rights in general—are governed in most respects by state laws. Figuring out the best game plan for you in the midst of the interplay between these two systems of laws is not for the dabbler in the law. Forgive the repetition, but for this and all the reasons given above, be sure to see a competent bankruptcy attorney to determine your best course forward when you are surrendering a home and want to have sufficient time before being forced to move.