During this Great Recession, we’ve been closely covering the foreclosure crisis from a real estate law perspective. I am not a bankruptcy attorney, and don’t claim to be. So I thought: why don’t we have an experienced bankruptcy attorney guest blog about the interplay between foreclosure and bankruptcy? Attorney Matthew P. Trask, a partner with Kelsey & Trask, P.C. in Natick, MA, was kind enough to do just that. Matt writes an awesome bankruptcy law blog, Don’t Go Alone. Welcome, Attorney Trask!
The Bankruptcy Automatic Stay, A Valuable Last Resort
Thanks Rich. It’s great to be here.
On September 13, 2011, CNBC reported that foreclosures owned by Bank of America surged more than 200%. “August traditionally is a high month for foreclosure actions, so part of the increase might be seasonal,” says RealtyTrac’s Rick Sharga. “[The increase is attributable to] any number of reasons – but with 3.5 million delinquent loans, this had to happen sooner or later.”
Continuing economic troubles coupled with high unemployment means that many homeowners are more than 90 days past due on their mortgage payments, setting the stage for the lender to take back title to the property, a legal process known as foreclosure. Oftentimes, consumers aren’t just behind on mortgage payments but other consumer debts, such as credit cards, medical bills, and even taxes. In addition to foreclosure, consumers who have fallen behind on debt may also face lawsuits, wage garnishments or asset seizures as creditors move to seek payment.
If you are between a rock and a financial hard place, bankruptcy may be an option to eliminate or catch up on past-due debt, and give you time to reorganize your finances. Additionally, bankruptcy law protects debtors as soon as a case is filed. Immediately upon filing bankruptcy, the U.S. Bankruptcy Code, 11 U.S.C. § 362(a), dictates that no creditor may take any judicial or non-judicial collection efforts against the debtor or the debtor’s property. This is called the Automatic Stay.
The Automatic Stay means that a pending foreclosure of your home, collection calls, wage garnishments, asset seizure or lawsuits must immediately cease until either the bankruptcy is completed, or the creditor obtains specific permission from the bankruptcy court. The benefit of the automatic stay is that it creates additional time for the debtor to deal with logistical issues associated with the bankruptcy, housing, cash flow or simply gives a debtor “breathing room” to work with their bankruptcy and real estate attorneys to protect their assets, eliminate debt, without the risk of losing property or assets during that time. Any creditor who ignores the automatic stay is subject to significant penalties by the bankruptcy court.
In the case of a debtor who wishes to keep his or her home, but has fallen behind on payments and facing an imminent foreclosure, the Automatic Stay, coupled with a Chapter 13 Bankruptcy can stop the foreclosure in many cases. Filing a Chapter 13 Bankruptcy petition creates the opportunity for repayment of the arrears over a period of between three and five years, and, in certain instances, completely discharges a home equity line or second mortgage if the value of the property is less than the balance on the primary mortgage.
Even if a debtor has previously modified their mortgage, and the terms of the modification appear to waive the debtor’s automatic stay protections, Emergency Standing Order 10-2 effectively voids any provision of any loan modification or forbearance agreement which states that upon default of the lender, the benefits of the automatic stay are waived. Prior to Emergency Standing Order 10-2, if a modification included such a waiver, the bank or mortgage lender could proceed with a foreclosure or other collection actions despite the filing of a Chapter 7 or Chapter 13 bankruptcy.
In summary, the automatic stay is a powerful tool available to individuals seeking bankruptcy protection, and is often key to any financial reorganization. If you have questions about how the bankruptcy code, including the automatic stay, may help brighten your financial future, speak to an attorney. Bankruptcy is a complex and technical process, but, if done correctly, can protect your assets and give you a fresh financial start.
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Attorney Matthew P. Trask is a partner with Kelsey & Trask, P.C., and represents business and consumer debtors and creditors before the United States Bankruptcy Court, District of Massachusetts. Kelsey & Trask, P.C. is a debt relief agency, helping clients file for relief under the U.S. Bankruptcy Code.
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