debt

File bankruptcy to stall foreclosure?

Justin HarelikDear Bankruptcy Adviser,
I am in the foreclosure process to the point that a sale date has been set. We then filed Chapter 7 bankruptcy and it canceled the sale. My question is: Does the bank have to start the process all over or can they just set a new sale date without the mandatory 30 days and 90 days of waiting period to resell the house?
-- Corey

Dear Corey,
Filing a bankruptcy petition stops the foreclosure sale in most cases. The bankruptcy imposes an "automatic stay" of most legal proceedings, including a foreclosure sale.

There are two very important caveats: If this is your second bankruptcy filing in the past 12 months, you only are given a 30-day stay unless you file a motion to extend the stay. If this is your third filing in the prior 12 months, you are not granted a stay at all, but must file a hearing on short notice to impose the stay.

Most of the time, people file only one bankruptcy to temporarily stop a sale. So I'll assume you don't have one of the two exceptions noted above. I also must say that I practice in California only, so while I can't speak definitively for all 49 other states, I can confidently say that the process is rather uniform throughout the country.

Filing the bankruptcy on the eve of a foreclosure sale will afford you anywhere from six weeks' to three months' of additional time in the property -- in most cases. The lender probably doesn't have to restart the foreclosure process once you file, but only postpone the foreclosure sale until receiving an order from the court that the automatic stay has been lifted.

Here is how the process would work:

  • Motion with the court. The lender needs to receive court approval to proceed with any action against your property. It will file this motion after receiving notification of your bankruptcy.
  • Set a hearing date. Once the motion is filed, the hearing will usually be scheduled 30 days after filing the motion. The lender is merely showing it has the right to receive an order taking the property out of bankruptcy protection.
  • Order from the court. A judge grants the request and the lender submits an order for the judge's signature, which could take a few days for the judge.
  • Reschedule the property for sale. Once the lender has the order, it will set the property for sale. Usually, the lender has an upcoming sale date for other properties. It will merely include this property with those other ones.
  • Contact the lender for relocation assistance. Some lenders will give you a few thousand dollars to move out quietly. You definitely don't want the lender evicting you from the property. Don't compound a bankruptcy filing and foreclosure with an eviction on your credit.

Hopefully, you had other unsecured debt to eliminate in your bankruptcy. I hate seeing people put a bankruptcy notation on their credit for the next 10 years just to get a few more months in the house.

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