The Bankruptcy Automatic Stay – Used for Good or Evil?
A recent Tampa Bay Times article reports on a Palm Harbor couple who has filed for bankruptcy a stunning 14 times between 2002 and 2013. Accounting to the article, the couples used the bankruptcy process to prevent the foreclosure of their home during that time.
Bankruptcy has an unusual and powerful characteristic called the “automatic stay” which is found in the law under 11 USC § 362. Bankruptcy is able to use the automatic stay to stop what is happening in the State Courts because bankruptcy is filed through the Federal Courts, and the way that United States law is structured, Federal law supersedes state law. So when a bankruptcy is filed, the State Courts are required to listen to the Bankruptcy Court and stop what they are doing. There are a few exceptions to this general rule. For example, the State Court would not have to stop a criminal prosecution or most family law proceedings. Additionally, there are some exceptions to the automatic stay for repeat bankruptcy filers.
The Tampa Bay Times found a fairly extreme example of when the powers of the bankruptcy court may have been over-indulged by a consumer. But in my experience, the abuse is much more often the other way around. I had encounters numerous consumers facing foreclosure who have done everything they can to work with a lender on a modification or short sale. The lender will continually tell the consumer that the modification (or other relief) is just over the horizon. While the lender endlessly continues to process the request, the lender is moving the case closer to foreclosure judgment until its too late and the house is sold in the foreclosure courts. In these cases, the lender seemingly is distracting the consumer so the consumer lets their guard down for the foreclosure court proceedings.
In these instances, bankruptcy can be an appropriate tool for a consumer to stop a foreclosure sale, and depending on the consumer’s situation, the bankruptcy can be used to eliminate a consumer’s deficiency obligation and to request a modification under the supervision of the bankruptcy court.
Attorney Michael Ziegler assists consumers with Chapter 7 and Chapter 13 bankruptcy in Clearwater, Florida. If you are facing a foreclosure sale through the court system, you may have options to stop the foreclosure through the bankruptcy system. Call Attorney Ziegler today to understand your options at (727) 538-4188 or fill out the contact form for your free consultation.