When Does Bankruptcy Not Stop Foreclosure Or Eviction?

When Does Bankruptcy Not Stop Foreclosure Or Eviction?

When will a bankruptcy not stop a foreclosure or eviction? I often get clients who come in and have an urgent need to file bankruptcy. There’s a foreclosure about to take place where their house is about to get sold, an eviction, or a legal proceeding where they’re about to collect on a judgment, garnish wages, or seize bank accounts. 

And they come in and they say, “Let’s immediately file bankruptcy and just put a stop to everything.” The automatic stay, which is the bankruptcy order that goes into place as soon as you file does go into effect the minute you file. However, there are exceptions to that. 

You’ve filed bankruptcy recently 

Let’s say you file a chapter 7 on your own and it gets dismissed because you didn’t do something right or for whatever reason. There can be an order from the bankruptcy court either prohibiting a refiling of the case or not allowing a bankruptcy stay, an automatic stay to go into place when the case has been refiled. 

So, you might be able to refile a case after it’s been dismissed, but the automatic stay that stops those actions may not automatically go into effect. So, it’s not necessarily an automatic thing. 

 

Creditors can file for relief from stay

Also, creditors can go in and say, “Look, the person isn’t even making their payments on their mortgage. We need to sell this house and do a foreclosure,” and they basically file a motion with the bankruptcy court which here in California is a motion for relief from stay. 

The creditor may say, “They’re not making their payments. Even since they filed bankruptcy three months ago, they still haven’t made a payment. They have no way of making payments.” So, all you’re doing is hurting the creditor by not letting them sell this asset and moving on. 

They may also not be adequately protected or have no equity cushion.  Perhaps they hold a first mortgage or a second mortgage on the property. And the property is underwater, the market is going down, so they need to sell it immediately. 

They make those arguments through a motion to the judge and, a lot of times, it is granted. Then they can move forward with the foreclosure sale of a house. They can ask the court for an exception to the automatic stay. 

The automatic stay is not a permanent solution

So there are ways for that to move forward and the best advice is to be aware that the automatic stay might put a stop to whatever’s going on in your life temporarily, but don’t think of it as a permanent solution. If you’re not able to make the payments, eventually, you’re going to lose that asset. That’s just the bottom line. 

All you’re doing is delaying. In some cases, that gives people time to come up with the money to get current or find a new job. But realize that just by filing bankruptcy you’re not automatically entitled to a stay where you stop everything for the whole bankruptcy and you’re safe. However, it does give you some short-term protection to possibly get your affairs back in order.

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