Tag Archives: automatic stay

Use It or Lose It: The Automatic Stay in a Third Bankruptcy Case

1_2_3ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I need to file a bankruptcy case to stop the foreclosure of my home. But there’s a catch. I already filed two Chapter 13 bankruptcy cases in the past ten months and both were dismissed. The first because of some bad advice I got. The second because I

found out too late that I needed to file a motion to continue the protection of the automatic stay within 30 days. 

The foreclosure is back on track and I need to stop it so that I can save my home. I’m handling the bankruptcy on my own.

So here’s my question. Since I didn’t use up my right to file a motion to continue the stay in the second bankruptcy, can I file another Chapter 13 case and also file the motion? It seems to me that my right to file the motion is preserved because I haven’t exercised it yet. 

Sincerely,

Grace

Dear Grace,

You don’t preserve your right to ask the court to continue the automatic stay by not using it. It’s a “use it or lose it” right during bankruptcy case number two. However, you may be able to get the court to impose a stay as to your lender in the third bankruptcy. Whether this will work depends on how much time you have before your home is foreclosed.

Here’s a bit more about repeat bankruptcy filings and the automatic stay.

The Automatic Stay in Your First Bankruptcy Case

As you correctly understand, only the filing of your first bankruptcy case created an automatic stay. Under the automatic stay, most creditors must stop collection activities during your bankruptcy. That automatic stay encompasses foreclosures – so your lender had to stop the foreclosure proceedings when you filed the first case. (To learn more, see Nolo’s article Bankruptcy’s Automatic Stay.)

The Automatic Stay in Your Second Bankruptcy Case

If you file a second bankruptcy case within one year from the filing of the first, the automatic stay only lasts 30 days. The court can extend the 30 days, but you have to file a motion asking the court to do so. In order to get the extension, you have to convince the court that you filed your second case in good faith as to creditors you are trying to encompass under the extension.

The court will only grant such an order during the first 30 days of case number two. This doesn’t leave you much time (as you found out). Experienced bankruptcy lawyers normally file an emergency motion to extend the stay on the same day as the second case is filed. Doing that provides the best chance of having the court consider the motion before expiration of the deadline.

The Automatic Stay in Your Third Bankruptcy Case

If you file for bankruptcy a third time within one year, the automatic stay doesn’t kick in at all. You can, however, ask the court to impose the automatic stay. Again, you’ll have to do this by motion and you’ll only have 30 days to get the order.

If you haven’t yet filed your third bankruptcy case, consider talking to a bankruptcy lawyer. An experienced lawyer may be able to file the motion requesting the automatic stay along with your bankruptcy case, and get the motion heard before 30 days have passed.  You’ll have to convince the court that you haven’t filed your third case in bad faith. (Learn more about the automatic stay in repeat bankruptcy filings.)

Whether this strategy will work depends on when the foreclosure sale is scheduled.  If the sale is scheduled to take place in less than 30 days, you’ll be out of luck.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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Filing Bankruptcy on the Eve of a Foreclosure Sale

Bankruptcy_Petition_iStock_000008359066XSmallASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed a Chapter 13 bankruptcy petition yesterday, late in the afternoon. I filed in California on my own, without an attorney. A foreclosure sale is set for tomorrow. After I got my bankruptcy case number I tried to contact the parties involved in the foreclosure to give them notice of my bankruptcy filing. I couldn’t reach anyone in the lender’s foreclosure office, nor can I find an email address or a fax number to notify anyone to stop the foreclosure. What should I do? 

Trista  

Dear Trista,

If you act quickly, you might be able to prevent the sale from going through. Even if the sale occurs, it’s possible you can void it (but it won’t be easy). Here’s what to do.

(Learn how Chapter 13 bankruptcy can help you save your home from foreclosure.)

Go to the Foreclosure Sale

You should attend the actual foreclosure sale, or send a reliable person to the sale. Get there early and provide proof of the bankruptcy filing to the auctioneer before the sale starts.

If You Can’t Attend, Record a Bankruptcy Notice

If you can’t attend the foreclosure sale, immediately record a Notice of Bankruptcy in the county recorder’s office. Do this in the county where the real estate is located.

Will the Bankruptcy Stop the Foreclosure?

The filing of a bankruptcy (assuming there are no prior bankruptcy filings), creates an automatic stay which prohibits most collection efforts, including a foreclosure. Courts have held that a foreclosure sale is void or voidable, when done in violation of the automatic stay. (Learn more about how the automatic stay stops foreclosure.)

Even so, it can get awfully tricky. Doubly so if the sale is conducted and the property gets purchased by an innocent buyer – what we lawyers call a BFP (“bona fide purchaser for value”).

There is at least one key court decision stating that the foreclosure sale is still voidable even if the property is bought by a BFP. However, it can be a litigation mess for a debtor who is trying to get a foreclosure sale rescinded. (In fact, I was the lawyer for the successful homeowner in that case. See Walker v. California Mortgage Service, 861 F.2d 597.)

If the Sale Has Occurred: Record the Bankruptcy Notice Before the Recordation of the Trustee’s Deed

Even if the sale has already been held, it is very helpful to record a bankruptcy notice before a trustee’s deed is recorded. The trustee’s deed upon sale is typically not issued to the successful bidder until a few days after the sale.

The recorded notice imposes what we lawyers call “constructive notice” upon all the parties involved. Constructive notice of the sale should remove any defenses that a BFP would raise if you have to bring a legal action seeking to void the sale.

Of course, you should continue efforts to notify the lenders and the foreclosure agents.

— Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+