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DIK Remedies For Foreclosure Breed Bankruptcy Tragedies

By Cathy Moran

Warning: virulent outbreak of do-it-yourself bankruptcies all around.

Symptoms:  panic over prospect of foreclosure

Supposed remedy:  file your own skeleton Chapter 13 bankruptcy

Prognosis: enjoy the stay for about 2 weeks, followed by foreclosure relapse

Homeowners facing foreclosure

Three different would-be clients called in a 10 day period this month, facing foreclosure.  And all three had the same tragic, but avoidable story.

I was on the trail of an epidemic.

Each had filed an emergency bankruptcy petition to address a looming foreclosure.  They then did nothing to file the balance of the schedules necessary in their cases.

How dismissal differs from discharge

Without schedules,  the case was dismissed, automatically. No court hearing, just tossed out for failure to follow the order that says “you’ve got two weeks to file the rest of the papers”.

And they did the same thing all over again a little bit later, again filing only the bare minimum of paperwork, before the second case is dismissed.

With two cases dismissed in the past 12 months, there will be no automatic stay in a third case.  The  bankruptcy won’t prevent the lender from foreclosing.

As a bankruptcy attorney, my bag of remedies was essentially empty.

Why homeowners sucked in

I understand the appeal of the automatic stay: it’s a lynch-pin of bankruptcy relief.

The automatic stay is powerful:  it applies to all creditors, it makes actions in violation of the stay void, and it becomes effective instantly upon filing bankruptcy.

The necessary paperwork to initiate a case is minimal, and the filing fee is just over $300.

Pretty seductive if you are panicked about losing your home.

Multiple filings labeled abuse

The pattern of debtors filing, getting dismissed, and filing again irked lawmakers back when the last round of bankruptcy amendments passed Congress in 2005.

After “reform”, every debtor gets a stay in their case.

File a second case within 12 months after the first was dismissed, and the stay lasts only 30 days.  The court will consider extending the stay if the debtor applies and gets an order within that 30 days.

File a third case, after two dismissals within 12 months, and there simply is no stay.

Chapter 13 can save your home

The tragedy in all of this is that Chapter 13 works, if you want more than just a two week stay.  Few problems that threaten foreclosure can be solved in two weeks.

How 13 can save your home

Understand that letting your case be dismissed cripples your  ability  to use bankruptcy in another case.

More

What should bankruptcy cost

How to interview a bankruptcy lawyer

Don’t wait til the day before foreclosure

Image courtesy of torange.biz.

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  • Find The Right Cure for Your Debt ProblemsFind The Right Cure for Your Debt Problems
  • When Can I File Bankruptcy AgainWhen Can I File Bankruptcy Again

Filed Under: Real property & mortgages Tagged With: 2019, automatic stay, foreclosure

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

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About The Soapbox

You've arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said "try").

Here, I allow myself to tell stories and express strong opinions on how I think law should work for the consumer and small businesses when it comes to debt.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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