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Bankruptcy and After Foreclosure

      When a debtor files a Massachusetts Chapter 7 bankruptcy there is an automatic stay that stops most collection actions, including foreclosure and eviction proceedings. Notwithstanding, the bankruptcy will protect the debtor for only a short time. Holders of mortgages that are delinquent may file motions for relief from the stay for the purpose of foreclosing, and for permission to evict the owner after foreclosure. If such a motion is allowed, Massachusetts state law is followed to complete the foreclosure sale. This can take months. After the foreclosure auction, the holder of the mortgage may have ownership, but it must acquire possession via a summary process action, otherwise known as an eviction. This can lead to further delays in the lender recovering possession. To save time, the lender will often negotiate with the former property owner. A former Chapter 7 debtor-client who experienced foreclosure was recently offered $4,000 to move out and allow the bank to have immediate possession.

I Surrender!

      When a debtor files a Massachusetts Chapter 7 bankruptcy case or Chapter 13 bankruptcy case their intention as to property must be stated. If the debtor does not wish to attempt to keep property an intention to surrender the property is stated.

If a debtor states an intention to surrender, the property does not automatically transfer to a secured creditor. To obtain title, a secured creditor must obtain relief from the bankruptcy stay of collection proceedings and then follow state law to obtain title to the present owner’s interest in the property.

I advise all of my clients that ownership translates to liability for injuries sustained on the property. A bankruptcy filing will protect a debtor for such claims existing before the filing, but not those arising after the filing. Therefore, it is imperative to keep the property insured until legal title transfers.

How to Pay for Bankruptcy When You are Broke

A client visited my office yesterday to discuss filing a MA bankruptcy case. He had no savings and very little money in his checking account. The client had a 401k with over $25,000. He had numerous credit card bills with balances totaling over $40,000 with regular monthly payments over$1,000. He had a wife and child and income of less than $50,000. This client was a perfect example of someone who should file Chapter 7 bankruptcy. His concern was how he could pay me to file the case. I had a few suggestions.

The obvious answer is to stop paying the credit cards entirely and take any saved money to apply to paying the bankruptcy attorney. In my client’s case, we looked at his credit card situation and discussed each obligation separately. I was able to advise him he could stop paying all of them immediately without harming his Massachusetts bankruptcy case.

Another option often open to people is their income tax refunds, and now their stimulus checks. If these payments haven’t been received they can be targeted for use in paying for the bankruptcy filing.

Never take money from a credit card to pay for the bankruptcy. And no, you can’t charge the bankruptcy! If you have supportive family or friends they can be a source of funds.

I rarely advocate taking money from retirement accounts, but it may be appropriate to do so only to file a bankruptcy case, especially where the filing is needed to stop a foreclosure on a home. This source of funds should be a matter of last resort.

In any event, always look at the big picture – what little you are paying to obtain such a huge debt relief.