Filing Bankruptcy after dismissal of prior bankruptcy can prevent foreclosure.
Faced with the prospect of losing their home through foreclosure, individuals often turn to Chapter 13 Bankruptcy for relief. Under the Chapter 13 Bankruptcy, they can resume make their regular mortgage payments. In addition, the mortgage arrears can be paid through the Bankruptcy over a period of five (5) years. But what happens if the debtor defaults in their Trustee payments because of loss of employment or other reason and their Bankruptcy is dismissed. Loss of employment is common in many towns in New Jersey, including Cherry Hill, Mount Laurel and Voorhees, NJ. Are they able to file another Bankruptcy and does the Bankruptcy still protect them from foreclosure by providing the automatic stay against the mortgage company.
When the Bankruptcy Code was amended in 2005, one of the sections changed addressed the impact of re-filing a Bankruptcy case after a prior case was dismissed. The Courts agree that in the circumstance where there have been two (2) cases dismissed within the prior year, the automatic stay does not apply to prevent a mortgage company from continuing with their foreclosure. It is possible that the debtor could still prevent the foreclosure in that circumstance, but they would have to take an affirmative step to convince the Court that staying the foreclosure is appropriate.
When there is one (1) Bankruptcy that has been dismissed within one (1) year prior to the filing of a new Bankruptcy, the Courts are somewhat split on the impact. The Bankruptcy Code actually states that when a Bankruptcy is filed within one (1) year of a dismissal of a Bankruptcy case, thirty (30) days after filing, a creditor has relief from the automatic stay to pursue property of the debtor. However, upon filing the Bankruptcy, virtually all of the debtor’s property, including their residence, becomes property of the estate. Based upon the language, most Courts have concluded that the re-filing of a Bankruptcy within one (1) year of the dismissal of one case still contains an automatic stay to prevent foreclosure of the debtor’s residence.
A minority of the states have concluded that Congress did not intend on the result dictated by the plain language of the statute and in fact after thirty (30) days, a mortgage company can foreclose.
The bottom line is that if circumstances caused your Chapter 13 Bankruptcy to be dismissed, a Bankruptcy attorney should be immediately consulted to determine whether filing another Chapter 13 Bankruptcy makes sense.