Let’s say you file a Chapter 7 bankruptcy case and you own some real estate. You’re looking to get out of debt and maybe line up a buyer for the property afterwards. Unfortunately, there’s a foreclosure that may happen before you can line things up.
Most people think their only option is to file a Chapter 13 or ditch the bankruptcy idea entirely in favor of working something out with the bank. But the smart money may be to stick with a Chapter 7.
The reason might surprise you.
A Chapter 7 bankruptcy is going to last for about 4-5 months, give or take a bit. During that time, the automatic stay prevents any creditor from taking continued action against you. That means the foreclosure’s got to stop.
You probably already know that creditors – especially mortgage lenders – are quick to ask the court to lift the automatic stay to allow them to go ahead with their foreclosure cases. Most Chapter 7 debtors roll over and play dead when it comes to these motions because it’s seen as a Kobayashi Maru, but that’s not always so.
All you need is $1 to defeat a motion for relief from automatic stay in a Chapter 7 bankruptcy.
Under 11 U.S.C. § 362(d)(2), a creditor can gain relief from the automatic stay one if “the debtor does not have equity in the property; and such property is not necessary to an effective reorganization.” Given the fact that the latter doesn’t come into play in a Chapter 7 bankruptcy, you’ve got to look only to the former.
So if you’ve got equity – any equity whatsoever – you can easily defeat a motion for relief from stay in a Chapter 7 bankruptcy.
Amazing what $1 will buy these days, right?
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