Does Bankruptcy Stop Foreclosure ?
Three questions that we hear all the time are Can bankruptcy stop foreclosure? Does bankruptcy stop foreclosure? and most importantly Will bankruptcy stop foreclosure? Many people declare bankruptcy to stop foreclosure. If you are facing foreclosure and are looking for ways to stop foreclosure, and are thinking about declaring bankruptcy, then read on.
Does Declaring Bankruptcy Stop Foreclosure Sale?
The answer is yes. Declaring bankruptcy does stop a foreclosure sale. At least in the short term. It can also be an effective way to permanently stop a foreclosure from proceeding, if you know what to do.
What is an Automatic Stay? Will Bankruptcy Stop Foreclosure?
Under the bankruptcy code, once you declare bankruptcy, you have an automatic protection that can stop foreclosures.
When you declare bankruptcy, you can choose to go with either a Chapter 7 or a Chapter 13. What are these and does bankruptcy stop foreclosure?
A Chapter 7 bankruptcy is where you are surrendering all your property and asking the Trustee to get your debts discharged. There are certain exceptions such as student loans and secured debts that are not discharged. A mortgage is classified as a secured debt. We will discuss a permanent solution, Chapter 7 bankruptcy to stop foreclosure and how to use it, in more detail later.
A Chapter 13 bankruptcy is a reorganization of your assets. You are not asking the court to have your debts discharged per se, but asking your creditors to allow you to pay back your debts under a payment plan. Typically, a Chapter 13 bankruptcy allows you to stretch your repayment over either a 3 or a 5 year period…depending on your situation. If this is your primary residence and you do not have a lot of equity in your home (especially where you owe more than what the house is currently worth), then your house can be classified as a homestead exemption.
Be sure to check with your State’s bankruptcy code to see what the allowable allowance you are entitled to. Under a Chapter 13 bankruptcy to stop foreclosure, you can effectively do so for up to 5 years…and possibly permanently if you know how. We will discuss how and other information on foreclosure help later in this article.
Bankruptcy Stop Foreclosure And Perfection of Chain of Title
Under the law, if a secured creditor wishes to lay claims against real estate, they must provide evidence of perfected chain of title:
“Federal Rules of Bankruptcy 3001 (d) Evidence of perfection of security interest. If a security interest in property of the debtor is claimed, the proof of claim shall be accompanied by evidence that the security interest has been perfected.”
According to data from the Federal Reserve Bank, over 85% of all sub-prime loans have been securitized. This means that your loan was more than likely placed into a Mortgage Backed Security and traded on Wall St. This means that if it is sold to Wall St, your “lender” no longer owns your loan…and can not prove that they are a real party of interest.
Under a recent Massachusetts Supreme Court Ruling in re: US Bank v Ibanez, it was decided that in order for a bank to foreclose, it must have a perfected chain of title from the original lender to the current party seeking to foreclose. It was also discovered that it is a standard practice that banks do not have named endorsements of the loan from the original lender to the current servicer.
This means that if you know how to argue your case, you can effectively stop foreclosure indefinitely because your “lender” (servicer) can not ever provide a proper perfected chain of title on your mortgage.
If you want to learn more about how to defend your home and use bankruptcy stop foreclosure, download this free ebook from Vince Khan called “The Foreclosure Defense Handbook” (sold on Amazon for $12.99)
Using a Chapter 7 Bankruptcy to Stop Foreclosure
Many homeowners declare Chapter 7 Bankruptcy to Stop a Foreclosure by declaring their loan as an unsecured debt. If you know your loan has been securitized (by reading the Foreclosure Defense Handbook), and can articulate this effectively both to your attorney and/or the bankruptcy Trustee, then this can be an effective strategy to stopping foreclosure.
You see, once you declare your loan as an unsecured debt, your “lender” will object. Once they object, you should write to your bankruptcy Trustee to force them to respect the US Bankruptcy Code 3001(d). This is especially effective if you have a securitization audit, as this proves that your loan has been securitized. Once a loan has been securitized, it forever loses its security because there is no one party who owns the promissory note. Again, if you read the free ebook by Vince Khan called “The Foreclosure Defense Handbook”, you will be much better informed and educated about how to defend yourself in bankruptcy to stop foreclosure.
Once your lender is unable to provide proof of perfected chain of title, then they are listed as an unsecured creditor. Once your Chapter 7 bankruptcy is discharged, the loan is also discharged with it and this will stop foreclosure.
This means YOU NO LONGER OWE THE BANK ANYTHING.
After the loan has been discharged, you will then file a new civil action in Circuit Court (or Superior Court if you are in California) called a Quiet Title Action to have the Mortgage or the Deed of Trust removed…since there is no longer a debt attached to the mortgage/deed of trust.
To learn more about this process and how to use bankruptcy stop foreclosure, download and read the free ebook by Vince Khan below.
We respect you privacy and will not reveal your information to anyone for any reason.
Use Chapter 13 Bankruptcy to Stop Foreclosure
Under a Chapter 13 bankruptcy, you will have to file a repayment plan with the bankruptcy court to stop foreclosure. This is your proposal of how you plan to repay your creditors…including your “lender” who is trying to foreclose.
Why would you want to file a Chapter 13 (ie. Having to repay your debt) as opposed to a Chapter 7? Sometimes, your assets are worth too much and you do not qualify for a Chapter 7. Also, under a Chapter 13 bankruptcy, you have a lot more options than you do under a Chapter 7 when it comes to stopping a foreclosure.
For one, you can file an objection yourself against your lender’s proof of claim as a secured creditor. Under a Chapter 7, only the bankruptcy Trustee can file an objection…and they may or may not do it.
As you may recall under Federal Rules of Bankruptcy 3001 (d):
Federal Rules of Bankruptcy 3001 (d) Evidence of perfection of security interest. If a security interest in property of the debtor is claimed, the proof of claim shall be accompanied by evidence that the security interest has been perfected.
If your lender can not provide proof of a perfected chain of title, then they can not claim to be a secured creditor. Often times, the only document they have is a photocopy of the original Deed of Trust (or Mortgage) and a photocopy of the promissory note. The only acceptable proof of chain of title that the bankruptcy court can accept is the original wet ink signature promissory note with named endorsements from the original lender to the current lender. We hope you can are beginning to see how bankruptcy can stop foreclosure.
There are literally thousands of homeowners around the country that are winning their cases through bankruptcy and stopping foreclosures permanently using this strategy.
The other advantage of a Chapter 13 bankruptcy is that you can file an adversary proceeding as well as stopping a foreclosure.
Bankruptcy Stop Foreclosure And An Adversary Proceeding?
An adversary Proceeding is a lawsuit that is under the umbrella of bankruptcy. This allows you to file what’s called a Declaratory Judgment that asks the court to declare that your “lender” is not a real party of interest permanently. If they are not a real party of interest, then they can never foreclose on your house.
Once you file for a Chapter 13 bankruptcy to stop foreclosure, your “lender” is required to provide proof of their secured interest. They often file a photocopy of your original documents and rely on your ignorance. It is your job to object. You have a right to object. Until and unless they can satisfy the Bankruptcy Code 3001(d), then they are not a secured creditor.
Once their period of proof is up (usually 90 days), and they can not provide proof of perfected chain of title on the original promissory note, then you can then file an adversary proceeding for a declaratory judgment.
The Declaratory judgment will permanently declare that your “lender” is not a real party of interest…thus permanently stopping the foreclosure.
We highly recommend that if you want to use bankruptcy to stop foreclosure, that you arm yourself with education by downloading the free ebook by Vince Khan called “The Foreclosure Defense Handbook”
We respect you privacy and will not reveal your information to anyone for any reason.
We trust we have shed some light on the question Does bankruptcy stop foreclosure? Can bankruptcy stop foreclosure? and Will bankruptcy stop foreclosure? and wish you success with stopping your foreclosure