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“Emergency” Bankruptcy Filing: Stop Foreclosure

Sometimes homeowners get into extended negotiations with their mortgage lenders hoping that a mortgage loan modification can be arranged. Lenders (or their servicing agents), or sometimes third parties who claim to be able to make such deals for you, lead homeowners to believe that they are negotiating in good faith, but they start and continue the foreclosure process, then lower the boom at the last minute: "Send $3500 (or some amount you don't have) immediately, or we can't continue to negotiate." What then?

The answer is that, if the foreclosure sale takes place, it's too late to do anything! You need to act immediately to stop the foreclosure sale. Since these are generally "non-judicial" proceedings, without a court involvement, you can either bring your own lawsuit and ask a local judge to stop the sale, for some good reason (an injunction), or you can file bankruptcy and invoke the "automatic stay" that stops all debt collection action.

Bringing a lawsuit and asking a judge to enjoin a foreclosure sale is an expensive and risky proposition, since the judge will need to hold a hearing before he'll issue the injunction. He may find no good reason to enjoin the sale (you are in default on the terms of the note, and the lender has contract rights to foreclose); or, if he does find good cause to enjoin a sale (a temporary measure at best), he may order you to post a bond to prevent loss to the lender.

Bankruptcy is effective, relatively cheap, and it can be fast. In most cases, a bankruptcy lawyer can prepare a basic petition and have you sign it and file the case in only an hour or two (depending largely on how long it takes to figure out the details of your situation, and list all the creditors). The only paper that must be filed immediately is the petition, a basic three page document, and the "matrix"; a list of your creditors and their addresses. The rest of the bankruptcy paperwork (which will be substantial) will need to be filed with the court within two weeks. But the filing of only the basic emergency petition and matrix will stop any pending sale, even if the sale is only an hour later.

For consumers (homeowners), two options exist: Chapter 7 (liquidation) and Chapter 13 (debt repayment plan). While either will stop the home foreclosure, at least in the short run, only a Chapter 13 filing will give you time to pay off the unpaid "deficiency" (missed payments and fees), or sell the house (if you can sell it for more than the loan amount). If you want to keep the house, and can't get a modification, the Chapter 13 plan will have to provide for you to make the regular mortgage payment (usually directly to the lender) plus an additional payment to cover the unpaid deficiency over three to five years.


At the Law Offices of H. Frank Cahill, in Anchorage, we represent clients throughout Alaska, including, Wasilla, Dillingham, Palmer, Valley, Kenai, Fairbanks, Kodiak, Seward, Soldotna, Homer, Juneau, Wrangell, Petersburg, Bethel, Nome and Sitka; in Fairbanks-Northstar Borough, North Slope Borough, Northwest Arctic Borough and Bristol Bay Borough; and across the Kenai Peninsula. 

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.