Does Second Chapter 13 Bankruptcy Stop Foreclosure?

Today I had my first hearing on a motion to extend the automatic stay in a Chapter 13 bankruptcy. In this instance, the debtor filed a Chapter 13 early this year, and the Court dismissed his bankruptcy for non-payment of his plan payments after the client lost his job. The bank started foreclosure after the dismissal. The client found a new, higher paying job. A few days before the sale date I helped the client file a new Chapter 13 plan. Under the old bankruptcy law the new filing would automatically stay the foreclosure and stop the sale so long as the new bankruptcy remained active and plan payments current. Under the new bankruptcy law, upon filing a repetitive bankruptcy ( that is , a bankruptcy within a few months of an earlier case) the new automatic stay is short lived.

The automatic stay triggered by my client’s second bankruptcy lasts only 30 days unless the debtor proves that he filed the second bankruptcy in good faith. The debtor has to show the court there are changed circumstances which explain why the second bankruptcy is feasible after the initial bankruptcy failed. Absent a showing that a second bankruptcy is filed in good faith bankruptcy protection terminates in 30 days, and the lender can restart foreclosure. In this instance the court found that the debtor’s new job was a sufficient financial improvement to warrant extension of the bankruptcy stay protection against foreclosure.

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