Foreclosure Actions – What Happens to My House?

Bankruptcy and Home Foreclosure

Birmingham Bankruptcy Attorneys helping stall foreclosures in Decatur, Oxford, Livingston and all of Alabama

The automatic stay on creditor actions, which begins the moment the bankruptcy petition is filed and the bankruptcy estate is created, is a powerful feature of the bankruptcy code. One of its most protective functions is its prohibition on any action to foreclosure on a debtor’s home or property. By filing a Chapter 7 or Chapter 13 bankruptcy petition, at the very least the debtor can delay the foreclosure process, typically for 3-4 months. In a Chapter 13 proceeding, the court will generally approve some sort of repayment plan for the debtor who is behind on his or her mortgage payments, and the debtor typically will not lose his or her home. In a Chapter 7 liquidation proceeding, however, the debtor’s home is sometimes sold in order to satisfy the claims of creditors. Relevant considerations in determining how best to protect a debtor’s home in the bankruptcy process include the debtor’s income, amount of equity in the home, and how far behind the debtor is on the mortgage payments.

Usually the automatic stay will delay the foreclosure process for at least 3-4 months. However, there are two important exceptions to this rule:

The bank holding the mortgage may petition the bankruptcy court to lift the automatic stay as to the mortgaged property. If this motion is granted, the bank does not have to wait until the end of the bankruptcy proceedings to move forward with the foreclosure. However, this process still typically delays the foreclosure for two months.

If the bank has already filed the required foreclosure notice under state law, the bankruptcy petition will not stop the clock on the foreclosure process. For instance, if the required notice must be given three months in advance of the foreclosure sale, and you receive the foreclosure notice in July but don’t file bankruptcy until September, the foreclosure sale will still be allowed to occur in October.

Chapter 7 contains a homestead exemption, which allows the debtor to exempt from the bankruptcy estate his place of primary residence (not secondary or vacation homes). There are limits to the exemption, which vary by state; some only allow an exemption of up to a certain dollar amount, while others express the limitation in terms of acreage. Often the determining factor for whether a debtor can claim an exemption as to his primary residence is the amount of equity he or she has in the home. For instance, if a debtor has $4000 in equity and the applicable state homestead exemption is for $5000, then the debtor may claim an exemption on the home and prevent its sale in a liquidation proceeding.

In deciding whether to file for bankruptcy, the biggest concern of a debtor is often what will happen to their home. A skilled bankruptcy attorney can help determine the most appropriate debt relief solution, and give a personalized overview of the options that a particular debtor faces. If you are facing foreclosure, contact the Jefferson County bankruptcy law firm of Parkman White, LLP today at 205-502-2000 to speak with an experienced bankruptcy attorney.