As a general matter, filing a bankruptcy proceeding imposes the Automatic Stay on most actions pending or to be filed against the debtor. Most of the stayed actions are related to debt collection efforts, but there are exceptions to the Stay.
Is a Foreclosure Action Subject to the Stay?
The Automatic Stay acts as an injunction or bar which stops creditors’ attempts to collect debts or enforce liens while the bankruptcy is pending. Generally, filing a Chapter 7 or a Chapter 13 Bankruptcy will stop a pending foreclosure action.
How Does Foreclosure Work
The mortgage agreement on a house usually allows the lender to sell the property at auction and apply the proceeds to the debt if the borrower falls behind on the payments or defaults on the loan. However, before doing so, the lender must use one of two types of foreclosure proceedings after having first allowed the debtor the opportunity to catch up or apply for certain loss mitigation programs like mortgage modifications.
Missouri permits a judicial and non-judicial method of foreclosure. In a judicial foreclosure, the lender files suit, asking a court for an order to hold a foreclosure sale. If the debtor doesn’t respond in writing, the request will be automatically granted. On the other hand, if the debtor does respond, the court will review the case and decide the winner. If the lender wins, the property will be sold at auction.
Non-judicial foreclosure is subject to statutory rules and is completed out of court. After taking the steps outlined in the statute, the lender can sell the property in a foreclosure sale. The required steps in Missouri are sending a notice to the borrower at least 20 days before the proposed sale date and publishing notices in a newspaper for a specified number of times or weeks. Most lenders opt for nonjudicial foreclosure since it is quicker and easier than the litigation required for judicial foreclosure.
Chapter 7 Proceedings
Chapter 7 Bankruptcy will delay a foreclosure sale while the Bankruptcy is pending (generally 3 months). If you don’t have a lot of dischargeable debt and are only filing to delay foreclosure, it is generally not the best way to go. This is because you are only eligible for a Chapter 7 filing once every eight years. On the other hand, if you’re in default on your mortgage, you may well have a lot of additional debt, making the filing worthwhile and allowing for a good faith filing.
If you plan to let your house go, either way, the extra few months of living there rent-free while the Chapter 7 proceeding goes through will allow you to save some money. You can then use those funds to pay down other debts. In addition, you may be able to renegotiate the terms of your mortgage while your case is pending.
Chapter 13 Proceedings
A Chapter 13 bankruptcy in Missouri can prevent foreclosure, allow you to make up missed car or mortgage payments, pay back taxes, stop interest from accruing on tax debt, and provide other debt relief. Under Chapter 13, the debtor must propose a three-to-five-year repayment plan offering to pay off all or some of the outstanding debts from future income. If the debtor complies with the repayment plan, all of the remaining dischargeable debt will be released at the end of the plan. To be eligible for using Chapter 13, the debtor must have a regular source of income and at least some disposable income to apply to the payment plan.
Contact a St. Louis Bankruptcy Attorney Today
Choosing the right bankruptcy chapter for you is an important decision with significant consequences. Let a Missouri bankruptcy attorney help you handle your debt issues by contacting us today.