Most people know the automatic stay protects debtors from creditors upon filing a Chapter 7 bankruptcy petition. While this is true, creditors may file a motion for relief from the automatic stay that allows creditors to continue collections actions for their specific debt. This happens most often when real estate is involved.
We have discussed in the past how Chapter 7 does not effect your obligations in regard to secured debts. Thus, if you own real estate and it is mortgaged, you must still pay the mortgage if you hope to keep the real estate after emerging from bankruptcy. In the current economy, many homeowners see bankruptcy as a good time to fall behind on their mortgage obligations in hopes of obtaining a loan modification during or soon after bankruptcy. While this works for many clients, you may run the risk of the bank filing a motion for relief from the automatic stay.
The motion for relief from automatic stay is a basic form. Most clients worry that the bank is actually foreclosing on the property. That is not the case. The motion for relief allows the bank to move forward with any collection efforts which include foreclosure. This may include foreclosure and sale (including immediate sale if a notice of sale was already posted and recorded before filing bankruptcy), but the bank must still go through with the general foreclosure process. They must file a notice of default, wait the statutory period, and file a notice of sale. In most cases, this still leaves a debtor plenty of time to negotiate for a loan modification. While the motion for relief from automatic stay may shorten the period of time a debtor has to “catch their breath,” it does not mean they will soon lose their home. If you are facing a similar problem and are looking for an attorney to represent you and present you with your available options, call the attorneys at First Source Law.
This post was written by Benjamin Yrungaray
Benjamin Yrungaray handles bankruptcy and loan modification cases at First Source Law. He is a member of the state bars of California (#256224), Pennsylvania (#208558), and New Jersey. He is also admitted in the Central District Court of California, Southern District of California, and New Jersey District Court.
