New Barriers to "Eleventh Hour" Chapter 13 to Stop Foreclosure

The new bankruptcy law requires all debtors to take a credit counseling course before filing bankruptcy. This requirement is particularly troublesome for people who need to file Chapter 13 at the last minute to stop a foreclosure on their house. In many foreclosure cases, debtors try to work out repayment arrangements with their mortgage company until the last day or two prior to the foreclosure sale. If negotiations fail to bring about a reasonable repayment plan to save the house a Chapter 13 bankruptcy on or just before the sale date becomes the homeowners last defense. In such instances, the homeowner may not have time to complete a credit counseling course and also prepare an emergency bankruptcy petition.

The new bankruptcy law provides that debtors can complete their credit counseling after they file their petition if they can demonstrate to the court "exigent circumstances." There are at least three cases decisions issued by bankruptcy judges involving debtors who sought to complete the debtor counseling education after filing bankruptcy to stop an immanent foreclosure or eviction.

In each case the court dismissed the bankruptcy because the debtor did not certify that they had tried unsuccessfully to obtain debt counseling within the 5 days immediately preceding the filing of their petition as required by the new bankruptcy law. As soon as someone first considers bankruptcy as a possible defense to foreclosure or eviction they should complete a credit counseling course so they will be eligible to file bankruptcy in the event they cannot otherwise save their homes.

posted by Jonathan Alper, bankruptcy and asset protection lawyer, Orlando, Florida