A bank or mortgage company will start a foreclosure against an individual who owns a home and falls behind in their mortgage payments. The bank is entitled to force a sale of the home to satisfy the debt. A Chapter 13 bankruptcy is a strategy to stop the foreclosure and restructure the mortgage debt, giving the debtor more time to reorganize.
Upon the filing of a bankruptcy case, the bankruptcy court issues an automatic stay. This stay operates as an umbrella of protection and stops creditors from pursuing any further collection activities. This stay will stop any pending foreclosure. A bankruptcy case is an effective tool to stop a foreclosure, but because of the new laws you must understand the new process and the effect of the stay.
Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), this stay was always automatic. Since the passage of BAPCPA, the rules of the game have changed. When a debtor files more than one bankruptcy case, the stay is not automatic. Upon the fling of a second case within the same year as the previous case being dismissed, the stay in the second case is only effective for 30 days and will not go into effect at all in subsequent cases. In a second case, the debtor needs court approval to get an extension of the stay beyond the initial 30 days. In third or more subsequent cases filed within one year, the debtor must request to have the stay implemented and establish that the new cases were not filed in bad faith.
The Automatic Stay Rules Were Changed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Here is a summary of the new law under the automatic stay provisions of 11 U.S.C. Section 362. Under the new automatic stay rules in bankruptcy, the automatic stay is limited when the debtor has had one or more previous bankruptcy cases dismissed during the year before the current filing.
If the debtor files a case and had one dismissal during the year before the current filing, the automatic stay is in effect for only 30 days. The court may extend the stay only if after a hearing is completed by the 30th day; the debtor establishes that the current filing was in good faith.
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If the debtor has had two or more dismissals during the year before the current filing, the automatic stay does not come into effect at all. The court may impose a stay following a properly noticed hearing if the debtor files a motion for stay imposition within 30 days of his or her petition and, at the hearing, establishes that the case was filed in good faith.
A bankruptcy is a powerful tool to stop a mortgage foreclosure. With a chapter 13 or 11 bankruptcy, a person can restructure the amount behind on the loan and pay off the arrears over time. Because of the changed rules on the automatic stay, if a bankruptcy has been filed more than one time within a year, the bankruptcy attorney must take great caution. Keep in mind that upon filing the second and third case after dismissals more and more must be shown to the court by way of good faith to get further extensions of the stay and stop any pending foreclosure or sheriff sale.
Act Quickly in Responding to Foreclosure and Consult Immediately with Our Lawyers
If you need a lawyer for foreclosure, our New Jersey lawyers always advise clients to act as quickly as possible in seeking out counsel early on in the foreclosure process and always long before a sheriff sale is scheduled to occur. The quicker you act the better chance you have of saving your home or property.