What Happens To A Foreclosure If You File Bankruptcy?

25 Aug What Happens To A Foreclosure If You File Bankruptcy?

There are many posts in these pages and on Mortgage Law Network about the types of foreclosures and the fact that a bankruptcy filing can stop the process.  But what happens then?  Just because in most states a bankruptcy stops a foreclosure (but see Gene Melchionne’s article on Connecticut foreclosures), it doesn’t end it.

The foreclosure process, in spite of the bankruptcy often continues.  When a bankruptcy is filed, however, the automatic a stay that is created will stop any further proceeding.  The stay lasts until one of two things happens: the bankruptcy ends by discharge or dismissal, or the creditor (mortgage company) gets the court to grant them relief from the stay to go forward.

There is a provision of the bankruptcy code (11 USC §362(d)(3)), however, that if the property is needed for an effective reorganization of the debtor in a chapter 13 bankruptcy, and the debtor is able to make normal monthly payments than the mortgage company can’t foreclose.  But the filing of a chapter 13 doesn’t end the foreclosure process – it merely stops it.  The mortgage company, if notice of sale has already been filed, can appear at the time and place of sale and continue it to another date to see if the bankruptcy has been dismissed by then.  And, unless you were present when the change in sale dates was announced, they don’t have to tell you when or where the next sale is scheduled.

When that continued sale date comes around, if the chapter 13 is still in place, the sale can’t go forward, but the sale can be moved yet again.  The mortgage company can continue to move the sale date forward waiting to see what happens in the bankruptcy.  In fact, they can do this for a year in California before having to cancel the sale altogether.

I guess the good news is that after a year, the mortgage company would have to send new notices of a sale if it wanted to go forward.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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