Will Filing for Bankruptcy Give Me More Time to Get My Home Out of Foreclosure
Filing for Chapter 13 bankruptcy can help you in keeping secured assets such as your home or other real property with an outstanding mortgage. Keep in mind, even a successful Chapter 13 bankruptcy will not eliminate your mortgage debt. But filing for bankruptcy does impose an “automatic stay” that gives you a certain amount of breathing room to catch up your mortgage payments and halting the progress of the foreclosure process to some degree.
Bankruptcy Court: Federal Law Does Not Affect Foreclosure Sale
Iowa law further complicates the issue of bankruptcy and foreclosure by affording the homeowner a “redemption” period. Basically, if your home is sold at a foreclosure auction, you have a certain amount of time to “redeem the property” and reclaim possession.
But does the automatic stay that accompanies a bankruptcy filing extend this redemption period? A federal bankruptcy judge in Iowa recently looked into this question and determined the answer was “no.” The case, In re Lieber, involves a man (the debtor) who owned a property in Sioux City.
In March 2017, the debtor’s mortgage lender initiated foreclosure proceedings on the property. The property was subsequently sold back to the lender at a foreclosure auction in July 2017. This triggered a one-year redemption period requiring the debtor to act on or before July 12, 2018.
The debtor subsequently filed for Chapter 13 bankruptcy protection on June 5, 2018. He did not act to redeem the property prior to the July 12 deadline. Instead, he argued before the bankruptcy court that the automatic stay “tolled” or effectively stopped the clock on the one-year redemption period. This would effectively give him more time to reclaim the property before the foreclosure sale became final. Most of the time, the homeowner has a right to “delay the sale”, (rather than a redemption right).
In this case, as long as the chapter 13 is filed before the sheriff’s sale is held,, the chapter 13 will act to provide the homeowner with time to cure the arrearage.
In previous cases the U.S. Eighth Circuit Court of Appeals–which has federal appellate jurisdiction over Iowa’s bankruptcy courts–has clearly stated the automatic stay “could not be used to enlarge [a] property right created by state law,” such as redemption. Nevertheless, the plaintiff argued there had been changes to federal bankruptcy law that afforded him a “separate right to cure the default on the property.”
Specifically, federal law says “a default with respect to, or that gave rise to, a lien on the debtor’s principal residence may be cured … until such residence is sold at a foreclosure sale that is conducted in accordance with nonbankruptcy law.”
The bankruptcy judge in this case said the question was whether the debtor’s property was “sold at a foreclosure sale” as defined by this law. Noting there was some disagreement among different bankruptcy courts on this point, the judge came down on the side of the lender here and held that–as far as Iowa law was concerned–the debtor’s property was “sold” at the time of the July 2017 foreclosure auction, notwithstanding the one-year redemption period.
Given this, and given Eighth Circuit precedent holding the automatic stay did not otherwise extend or affect the one-year redemption period, the bankruptcy court held there was no legal barrier to the bank taking possession of the debtor’s now-former property.
Speak with an Iowa Chapter 13 Bankruptcy Lawyer Today
Many people file for bankruptcy because they assume it will help them save their house from foreclosure. But as the case above illustrates, the legal reality is often not so simple. This is why it is critical to engage a qualified Southeast Iowa bankruptcy attorney before the bank starts foreclosure proceedings. Contact the Noyes Law Office, P.C., if you need immediate assistance.