Bankruptcy Law and Foreclosure Overview
Introduction to Bankruptcy Law
and the Bankruptcy System:
An Educational Primer for State Courts
[Template Presentation For Educational Use]
This template presentation, provided by
the Federal Judicial Center, combines,
edits, and expands presentations given by
bankruptcy judges and state trial court
judges. Contact Jason A. Cantone, at
fedstate@fjc.gov
, for more information.
C
o
n
t
e
n
t
N
o
t
e
This presentation only addresses
foreclosure. A full presentation
with all six topics (bankruptcy
overview; automatic stay;
bankruptcy discharge; family law;
foreclosure; additional
considerations) is available at
fjc.gov/fedstate, as well as
separate presentations for each
of those topics.
Bankruptcy
and
Foreclosure
Automatic
Stay and
Foreclosure
The automatic stay stops
foreclosures against the debtor at
any stage:
•
nonjudicial foreclosures
•
ejectment cases
•
judicial foreclosures
Mortgagees’ motions for relief from
stay are probably the most common
filing.
Automatic
Stay and
Foreclosure
When the foreclosure is completed
and the debtor’s interest in the
property is extinguished, the stay no
longer protects the property:
•
recording of deed in nonjudicial
foreclosures
•
entry of sale confirmation order in
judicial foreclosures
But the stay still protects the debtor
from personal liability for any
deficiency debt after the foreclosure.
Effect of
Order for
Relief from
the Stay
An order for relief from the stay
does only that and nothing
more.
•
No adjudication of claims.
•
No abandonment of property.
•
No relinquishment of
jurisdiction.
•
Usually does not determine
who is entitled to possession of
collateral.
Serial Filers
•
The stay expires 30 days after the
case is filed in the case of an
individual debtor who has had one
prior case dismissed within the prior
twelve months (unless extended for
cause).
•
There is no stay in a case filed by an
individual debtor who has had two
prior cases dismissed within the prior
twelve months (debtor must seek to
impose the stay within the first 30
days of bankruptcy).
•
In rem
relief is available to a lender.
•
The stay may be extended by the
bankruptcy court for cause.
Foreclosure
After
Chapter 13
•
Many lenders misapply
payments during Chapter 13.
•
Many lenders pile on “hidden”
charges during Chapter 13.
•
Motions to Deem Mortgage
Current seek to avoid
“surprises” at the end of the
plan.
Foreclosure
After
Chapter 13
Transfers of the mortgage often
create accounting difficulties.
A
d
v
i
c
e
:
•
To ensure proper
accounting, many
bankruptcy courts require
mortgage plan payments be
made through the trustee
(as opposed to direct
payments to the creditor).
•
Modification can occur with
multiple pieces of collateral.
Receivers and
Commissioners
A receiver or commissioner must
turn over property of the estate
once a bankruptcy is filed.
A receiver or commissioner may
seek to be “excused” from turning
over property of the estate.
Only the bankruptcy court can
determine whether turnover may be
“excused.”
N
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e
:
T
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’
s
p
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o
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t
y
.
Can
bankruptcy
solve a
foreclosure
problem?
Automatic stay halts foreclosure–
but only temporarily–and
discharge does not halt
foreclosure.
The Bankruptcy Code generally
does not allow a debtor to
nonconsensually modify a loan
secured only by debtor’s
residence–no principal reduction,
interest adjustment, or
reamortization.
•
Modification can occur with
multiple pieces of collateral.
•
Note: Chapter 12 rules differ.
Can
bankruptcy
solve a
foreclosure
problem?
(cont’d)
Chapter 13 allows “cure and
maintenance.”
Debtors can “strip off” wholly
unsecured junior mortgages and
liens.
Can
bankruptcy
solve a
foreclosure
problem?
(cont’d)
N
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:
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.
•
If such an agreement is
reached, these programs
generally provide for an order
approving the modification and
governing the parties
thereafter.
Additional
Resources
Federal Judicial Center website on federal-
state cooperation:
https://fjc.gov/fedstate
National Center for State Courts resource
guide on foreclosures:
https://www.ncsc.org/Topics/Financial/Foreclos
ures/Resource-Guide.aspx
Thank You
This presentation was organized
by Federal Judicial Center Senior
Research Associate Jason A.
Cantone, with considerable
assistance by a number of federal
and state judges and court
personnel (see note for slide 1).
Questions about the presentation
and its use can be directed to
Dr. Cantone, at
fedstate@fjc.gov
.
We would also like to hear from you
if you find it helpful or have any
recommendations to improve it.
This presentation was greatly benefitted by the following individuals, who reviewed an earlier draft of the presentation: Hon. Shon Hastings, Hon. Craig Whitley, Hon. Cate Furay, Hon. Charles L. Nail, Jr., Hon. Ashely Chan, Hon. Robert Kressel, Hon. Robert Drain, Hon. Diane Finkle, Hon. Robert Faris, Elizabeth Wiggins, and Brian Lynch. The presentation utilizes and expands on prior educational materials provided alongside interviews held by Dr. Jason Cantone with: Hon. Dan Collins, Hon. Brian Davis, Hon. Robert Faris, Hon. Cate Furay, Hon. Martin Glenn, Hon. A. Benjamin Goldgar, Hon. Mary Gorman, Hon. Laurel Isicoff, Hon. Catherine McEwen, Hon. Robyn Moberly, Hon. Mindy Mora, Hon. Chris Panos, Hon. Laura Taylor, and Ann M. Anderson. This presentation was made better by all of these individuals, as well as the Judicial Conference Committee on Federal-State Jurisdiction.
This presentation delves into the intersection of bankruptcy law and foreclosure, emphasizing the automatic stay's impact on the debtor's property rights and liability post-foreclosure. Key topics include the effects of relief from the stay and the expiration of stays for individual debtors. Gain insights into protecting debtors' interests amid foreclosure proceedings.
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Presentation Transcript
Introduction to Bankruptcy Law Introduction to Bankruptcy Law and the Bankruptcy System: and the Bankruptcy System: An Educational Primer for State Courts An Educational Primer for State Courts [Template Presentation For Educational Use] [Template Presentation For Educational Use] This template presentation, provided by the Federal Judicial Center, combines, edits, and expands presentations given by bankruptcy judges and state trial court judges. Contact Jason A. Cantone, at fedstate@fjc.gov, for more information.
Content Note This presentation only addresses foreclosure. A full presentation with all six topics (bankruptcy overview; automatic stay; bankruptcy discharge; family law; foreclosure; additional considerations) is available at fjc.gov/fedstate, as well as separate presentations for each of those topics.
Bankruptcy and Foreclosure
The automatic stay stops foreclosures against the debtor at any stage: Automatic Stay and Foreclosure nonjudicial foreclosures ejectment cases judicial foreclosures Mortgagees motions for relief from stay are probably the most common filing.
When the foreclosure is completed and the debtor s interest in the property is extinguished, the stay no longer protects the property: Automatic Stay and Foreclosure recording of deed in nonjudicial foreclosures entry of sale confirmation order in judicial foreclosures But the stay still protects the debtor from personal liability for any deficiency debt after the foreclosure.
An order for relief from the stay does only that and nothing more. Effect of Order for Relief from the Stay No adjudication of claims. No abandonment of property. No relinquishment of jurisdiction. Usually does not determine who is entitled to possession of collateral.
The stay expires 30 days after the case is filed in the case of an individual debtor who has had one prior case dismissed within the prior twelve months (unless extended for cause). There is no stay in a case filed by an individual debtor who has had two prior cases dismissed within the prior twelve months (debtor must seek to impose the stay within the first 30 days of bankruptcy). Serial Filers In rem relief is available to a lender. The stay may be extended by the bankruptcy court for cause.
Many lenders misapply payments during Chapter 13. Many lenders pile on hidden charges during Chapter 13. Foreclosure After Chapter 13 Motions to Deem Mortgage Current seek to avoid surprises at the end of the plan.
Transfers of the mortgage often create accounting difficulties. Advice: To ensure proper accounting, many bankruptcy courts require mortgage plan payments be made through the trustee (as opposed to direct payments to the creditor). Foreclosure After Chapter 13 Modification can occur with multiple pieces of collateral.
A receiver or commissioner must turn over property of the estate once a bankruptcy is filed. A receiver or commissioner may seek to be excused from turning over property of the estate. Receivers and Commissioners Only the bankruptcy court can determine whether turnover may be excused. Note: The sheriff is often the party in possession of the debtor s property.
Automatic stay halts foreclosure but only temporarily and discharge does not halt foreclosure. Can bankruptcy solve a foreclosure problem? The Bankruptcy Code generally does not allow a debtor to nonconsensually modify a loan secured only by debtor s residence no principal reduction, interest adjustment, or reamortization. Modification can occur with multiple pieces of collateral. Note: Chapter 12 rules differ.
Chapter 13 allows cure and maintenance. Can bankruptcy solve a foreclosure problem? (cont d) Debtors can strip off wholly unsecured junior mortgages and liens.
Note: Many bankruptcy courts have court-supervised loss- mitigation programs in which homeowner borrowers and mortgage holders negotiate a possible consensual loan/mortgage modification. Can bankruptcy solve a foreclosure problem? (cont d) If such an agreement is reached, these programs generally provide for an order approving the modification and governing the parties thereafter.
Additional Resources Federal Judicial Center website on federal- state cooperation: https://fjc.gov/fedstate National Center for State Courts resource guide on foreclosures: https://www.ncsc.org/Topics/Financial/Foreclos ures/Resource-Guide.aspx
This presentation was organized by Federal Judicial Center Senior Research Associate Jason A. Cantone, with considerable assistance by a number of federal and state judges and court personnel (see note for slide 1). Thank You Questions about the presentation and its use can be directed to Dr. Cantone, at fedstate@fjc.gov. We would also like to hear from you if you find it helpful or have any recommendations to improve it.
