Many debtors facing foreclosure turn to bankruptcy. One of the primary reasons why debtors file bankruptcy is to take advantage of a statutory protection known as the automatic stay. The stay acts as an injunction, or bar, against any attempts by creditors to collect debts or enforce liens. In most cases, foreclosures are included within the scope of actions prohibited by the automatic stay.
The automatic stay is triggered as soon as you file bankruptcy. No action besides filing a bankruptcy petition is required for the automatic stay to go into effect. The automatic stay applies in both Chapter 7 and Chapter 13 bankruptcy cases.
In many states, foreclosure is a judicial process that requires court approval. In other states, foreclosure can be completed nonjudicially, or in other words, without any court involvement. Once you file bankruptcy, the automatic stay bars any attempts to begin, continue, or complete a foreclosure, either in or out of state court.
The automatic stay provides additional time to try to deal with a pending foreclosure. The options for dealing with a pending foreclosure depend in large part on whether you file for bankruptcy under Chapter 7 or 13.The automatic stay gives the trustee time to try to sell property that would otherwise be foreclosed where there is potential benefit for the estate.
In Chapter 7, the stay can benefit the estate by providing money for payment of claims when the property that is being foreclosed is worth more than any mortgages and liens against it. Depending on the circumstances, the stay may benefit you as well:
The stay can provide you additional time to arrange other housing, or to raise funds to reinstate your mortgage, if the property being foreclosed is your home.
If the trustee sells the property for enough money, you may be entitled to a portion of the proceeds. You are entitled to the value of your homestead exemption after any mortgages or other valid liens are paid. You also are entitled to excess proceeds if the property sells for enough to pay all of your creditors in full.
Feel free to add any additional experiences or testimonies about dealing with bankruptcy sellers and automatic stay.
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