If you are facing foreclosure on your home in New York and you file for bankruptcy, will the automatic stay protect your home from foreclosure?
The answer: Yes and no.
Once you file for bankruptcy, the automatic stay goes into effect and prohibits any creditors from taking any actions to collect money or assets from you. This does indeed apply to a foreclosure as well. However, if the mortgage lender or bank does have the right to foreclose on your home, there is the possibility that they can go to the bankruptcy court and get the automatic stay lifted. (Note: This is a typical scenario in a chapter 7 case. However, it is not usually the case in chapter 13.)
And to be clear, the automatic stay is not temporary. It lasts for the duration of the case, whether Chapter 7 or Chapter 13, other than instances where the judge signs an order vacating the stay.
Many people in foreclosure file a chapter 13. The court will not lift the stay if the debtor makes post-petition payments and has a plan for paying back the arrears that the court confirms. Arrears can be paid back over 5 years without interest. At the end of the five years the loan is fully reinstated if the debtor completes the plan.
Also the Southern District of New York (SDNY) and some judges in the Eastern District of New York (EDNY) will put the loan into loss mitigation at the request of the debtor. While the court cannot force a loan modification, it can force the lender to talk to the debtor.
All of the above said, there are various situations where a delay in and of itself may be to the homeowner’s advantage. If you can buy an extra month or two, that’s additional cash on hand you’ll have. Or, if you want to contest the mortgage, the automatic stay can buy you time to do so.
Contesting the mortgage has also become much more common. Especially in light of the mortgage scandal affecting major home lenders. Banks created tons of mortgages and then broke them up into tradeable pieces and then re-sold them to others who have re-sold them as well. As a result, there are many instances where a bank has not been able to prove it is the rightful owner of the mortgage. Or it takes time for the bank to track down and review the documentation. So there may be strategic advantages to filing for bankruptcy to stop foreclosure.
Additionally, filing for bankruptcy will cancel unsecured debts that may mean more additional cash on hand for you that may enable you to make necessary payments on your mortgage. Also, there are tax advantages to filing for bankruptcy since it cancels out your mortgage and other secured by your home, even though the lien on your home remains in place.
For more questions about foreclosure, bankruptcy, the automatic stay and effective strategies for dealing with foreclosure, please feel free to contact experienced Brooklyn NY foreclosure attorneys Bruce Weiner for a free initial consultation.