Bankruptcy as Foreclosure Defense Strategy Should Be Carefully Weighed
One of the primary benefits of filing for a bankruptcy is that it grants the petitioner an automatic stay that delays the forward march of a foreclosure proceeding.
This is something that is extended to debtors filing for either a Chapter 13 bankruptcy or a Chapter 7 bankruptcy‚ and the order for relief requires creditors to immediately cease collections operations – no excuses. That means that even if your home is scheduled for a foreclosure sale‚ that proceeding will be postponed while the bankruptcy action is pending. Typically‚ this buys you at least three or four months.
However‚ as with almost any legal proceeding‚ there are exceptions to the rule. Bankruptcy as a Los Angeles foreclosure defense strategy can prove effective‚ but it must be carefully considered. The case of In re: Behrens‚ recently weighed by the Bankruptcy Appellate Panel for the Eighth Circuit‚ illustrates why such care is so important.
Here‚ the bankruptcy petitioner appealed the bankruptcy court’s order granting his mortgage holder relief from the automatic stay that was enacted when he filed for bankruptcy. The petitioner contended that the bankruptcy court erred in this ruling because it did so without a separate hearing.
The appellate court affirmed the earlier decision‚ holding it proper.
The petitioner had filed for bankruptcy in March of this year – the fourth of five bankruptcy cases he and his wife had collectively filed.
Back in 2009‚ the bank had initiated foreclosure proceedings on the property in question after the debtor and his wife had missed several months worth of mortgage payments. The foreclosure proceeding was stayed in November of that year due to a bankruptcy filing‚ but recommenced after that case was dismissed. Twice more‚ foreclosure proceedings were stayed and again recommenced before the debtor filed bankruptcy for the fourth time in as many years.
The fourth case too was dismissed‚ but that dismissal was subsequently vacated and converted to a Chapter 7 case‚ although that case too was ultimately dismissed.
The property was sold in a sheriff’s sale on May 10 of this year‚ after the court had granted the bank relief from the automatic stay. However‚ unbeknownst to either the bank or the local sheriff’s department‚ the debtor’s wife had filed the fifth bankruptcy just minutes before the sale was completed.
The couple wanted to void the foreclosure sale on the grounds that the fifth filing would have meant another automatic stay.
The creditor objected‚ and the court ultimately sided with the bank.
The court noted the pattern of the husband and wife’s multiple bankruptcy filings and interpreted their sole purpose was to hinder or delay the foreclosure proceedings. The court noted that multiple bankruptcy filings are not the proper method with which to seek remedy.
That doesn’t mean that a bankruptcy filing can’t be strategically used to help a homeowner save his or her home. Indeed‚ that is the reason why the automatic stay provisions are written into law. However‚ one must be careful in planning their approach‚ or else risk falling into a similar trap‚ which here proved not only time-consuming but expensive and ultimately ineffective.
If you are contemplating bankruptcy in San Fernando Valley‚ contact Nader‚ Naraghi & Woodcock‚ APLC to schedule your free consultation. Call (800) 568-0707.
Behrens v. U.S. Bank N.A.‚ Nov. 25‚ 2013‚ Bankruptcy Appellate Panel for the Eighth Circuit