Automatic Stays for Multiple Bankruptcies

[Andy Mirza]

(Not legal advice; just relaying my own experiences & understandings)

When a borrower files a Ch 7 or Ch 13 bankruptcy, there is an automatic stay against all creditors from collecting on the filer's debts. As a lender, this means that you have to postpone any foreclosure sales and you have to get relief from the bankruptcy court before you can resume a foreclosure sale. You do this by filing a Motion for Relief (MFR), having the judge grant your motion, and getting a signed order for relief.

However, if a debtor files another BK within 1 year of the dismissal of a previous BK, then the automatic stay lasts for only 30 days.  In most cases, the debtor will file a Motion to Extend the Automatic Stay. In one of our recent cases where this happened, we filed an Opposition to the debtor's motion. At the hearing, the judge denied the motion, which meant that as soon as the 30 days expired, we were clear to foreclose and did.

If a debtor files a 2nd time within 1 year of the dismissal of the 1st BK, then there is no automatic stay. You are clear to foreclose without delay although you should prepare to oppose the debtor's motion to impose the automatic stay. 

We had another case where the debtor had two BK filings within 6 months prior to us purchasing the loan. We re-set the sale date and the borrower filed a third BK a couple of weeks before the sale. This gave him enough time to get a hearing for his motion to impose the automatic stay. Unfortunately, we had to cancel the sale but the debtor's motions were denied and we received in rem type relief, which prevented any future BK filings from stopping any future foreclosure sales within the next 180 days.

[Jason Duhn]

(Not legal advice)

Excellent post, good information there.

I practice in Indiana, so the below may not be relevant/correct for other jurisdictions.

Some additional caveats/tips I would add:

- if you have a bankruptcy filer filing multiple bankruptcies to stave off a foreclosure sale, especially after the second/third bankruptcy filing within a year, and you attempt to seek In Rem relief, it is a good idea to get a certified copy of the Order for Relief and record it with the county. This is a potential block against a bankruptcy filer transferring the property to another person/entity who then files another bankruptcy to continue staving off the foreclosure sale.

- at least in Indiana, when a debtor has a previous bankruptcy dismissed in the last year, there is case law to support that the 30 day stay after the first dismissed bankruptcy within a year, cannot be extended after the expiration of the 30 days.  So in other words, the bankruptcy filer has to get an order extending the stay within those 30 days, or stay cannot be extended.

- be wary of Chapter 11 bankruptcy filings, on a pacer search it may look like a Chapter 11 was dismissed/closed, but often times the Court may close Chapter 11's for administrative reasons, while the Chapter 11 is pending, so it isn't really dismissed/closed. That could play into the analysis of the timing of the if the bankruptcy filer files a string of bankruptcies under different chapters.