In May, the bankruptcy court dismissed Octomom’s Chapter 7 bankruptcy. This high profile case provides some basic bankruptcy lessons.
Octomom (Nadya Suleman) hit the news in 2009 after giving birth to octuplets. She already had six children. She made the news again in the spring of 2012 when she filed for Chapter 7 bankruptcy, allegedly to save her home from foreclosure. Apparently, she was far behind in mortgage payments and had little income coming in. Her case is a good primer on a few basic bankruptcy concepts:
1. The Emergency Petition. Octomom filed a bare bones bankruptcy petition, called an “emergency bankruptcy” or a “skeleton petition.” If you need to file for bankruptcy in a hurry, this is perfectly acceptable. By filing a few simple forms, you can enjoy the immediate protection of the bankruptcy court. But you must file the rest of the paperwork within 14 days. Octomom failed to do this, so the court dismissed her case. (Learn about the steps in filing an emergency bankruptcy petition.)
2. If You Are Facing Foreclosure, Chapter 7 Usually Won’t Help Save Your Home. Chapter 7 bankruptcy does not provide a method for catching up on mortgage arrears. While filing for Chapter 7 bankruptcy puts a stop to all collection efforts (called the automatic stay), including a pending foreclosure, this reprieve is temporary. The mortgage lender can, and will, ask the court to lift (remove) the automatic stay so that it can proceed with the foreclosure. If you don’t have the money to pay the mortgage arrears, the court will allow the lender to foreclose on your home. (Learn more about what happens to your home and mortgage in Chapter 7 bankruptcy.)
Chapter 13 is usually the better choice if you are facing foreclosure and want to save your home. Through your Chapter 13 repayment plan, you can catch up on mortgage arrears. But in order to propose a feasible Chapter 13 plan, you must have a certain amount of money coming in the door. It appears that Octomom didn’t have enough money to meet the Chapter 13 plan requirements. (Learn about saving your home from foreclosure with Chapter 13 bankruptcy.)
3. If a Bankruptcy Case Is Dimissed, the Automatic Stay Is Limited in Future Bankruptcy Filings. This is probably the most important lesson to learn from Octomom’s bankruptcy filing and subsequent dismissal. If the court dismisses your bankruptcy case and you file again within one year, the automatic stay will only last for 30 days. After that period of time, creditors can resume collection efforts. You can ask the court to extend the automatic stay (you must do this by filing a formal motion with the court), but you’ll have to show that your circumstances have changed and that you aren’t filing repeatedly in order to abuse the bankruptcy system. For example, if the court thinks that Octomom is repeatedly filing for bankruptcy in order to delay foreclosure, it would not extend the stay. (See Losing the Automatic Stay for Repeat Bankruptcy Filings.)
So what did Octomom gain by filing for Chapter 7 bankruptcy? A few weeks of time. And what did she lose? Her filing fee, the time and hassle involved in filing the papers, and possibly the long-term protection of the automatic stay if she needs to file for bankruptcy in the near future.