Let’s take a look at a chapter 7 bankruptcy case under a common scenario with a debtor owing more than the house is worth and is behind on payments:

Upon filing bankruptcy the automatic stay stops the lender from taking further action to foreclose or collect payments. If a foreclosure sale is scheduled it will be stopped and the collection calls must also stop. However, the lender can file a motion with the court requesting relief from the automatic stay so they can proceed with the sale. The motion process generally takes a few months, but in the meantime, the lender has the right to merely continue the foreclosure sale in 30 day increments. So, when the court grants their motion for relief from stay, which generally happens, the sale can usually be conducted on the next sale date after the court grants the relief.

Bankruptcy in this case has helped the debtor obtain a little extra time to stay in the home. Another benefit to the chapter 7 debtor is that any recourse loan obligations are generally discharged. Some home loans, such as refinanced loans and seconds not obtained at the time the property was purchased are recourse loans. Meaning the lender can file suit against the debtor for deficiencies from a short sale or foreclosure sale. In chapter 7 bankruptcy recourse loans are generally discharged.

The subject regarding home loans in bankruptcy is complicated and each case is different and the outcomes may vary. It is important to discuss your specific circumstances with an attorney experienced in these matters.

All too often the foregoing scenario is played out during the bankruptcy process. Trustees have a lot of information at their disposal and usually find out about transfers of property. Legitimate sales to independent third parties are usually OK and are not avoided. But transfers to friends and relatives will be closely scrutinized and if the facts are within the fraudulent transfer laws, and the property has value, then the trustee is likely to go after the property. You may be able to protect your property through an exemption that you are legally entitled to claim. This is but one reason why you should not try self-help bankruptcy consultation or take advice from someone unfamiliar with bankruptcy laws.

In addition, your petition and other paperwork are signed under penalty of perjury. You may be committing bankruptcy fraud and violating federal law of you fail to report a sale or transfer on your paperwork.

Contact an experienced like one at Schurter Law Firm for more information about protecting your assets and exemptions.