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.
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.
Understand that letting your case be dismissed cripples your ability to use bankruptcy in another case.
Image courtesy of torange.biz.