One of the mainstays of a bankruptcy filing is the automatic stay. The automatic stay is probably the number one reason that people use filing for bankruptcy for debt elimination. When an individual files for bankruptcy, the automatic stay is put in place stopping all forms of collection from the creditors, including stopping foreclosure. Using bankruptcy to stop foreclosure is all good, but there are some problems with that theory. If a debtor is behind on their mortgage payments the lender will file a motion with the bankruptcy court for a "Relief from Stay". If the court approves this motion, the lender will be able to continue on with their foreclosure to recover the property. If the debtor wants to keep the property, they will need to work something out with the lender if they are in a Chapter 7 bankruptcy. If the debtor files Chapter 13, the debtor's bankruptcy attorney, along with the trustee and creditors, will come up with a payment plan that will allow the debtor to keep the property and catch up on the back payments.
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Recently, because of what has been going on in the mortgage industry, property notes have been exchanging hands more frequently than a bunch of kids passing notes in homeroom. With all of this happening, the court now requires a lender that is filing a motion for relief from stay, to show proof that they actually own the note. Surprisingly, most lenders don't come to court with the proper information delaying their motion to move forward foreclosing on the property. Many Bankruptcy Courts want to see proof of the ownership with a copy of the original note that is assigned to the new lender. This has become a real problem with mortgage loans, just about every real estate loan has been bought and sold. If the lender who currently holds the note is not the same lender who was on the original loan document, the bankruptcy court will make the lender document and prove all the transfers.
When a debtor decides they want to try and keep their home, many bankruptcy courts require a reaffirmation agreement. A reaffirmation agreement is the process where a debtor binds themselves to a debt and the lender allows them to keep the collateral. This of course requires the debtor to continue making the payments and stay current. The difference between a reaffirmation agreement of a loan on a car or a house can change from state to state. There are different rules about reaffirmation that should be understood, and a person filing for bankruptcy should consult a bankruptcy attorney to find out the laws that will affect them. An example to this would be a car that can be picked up by the lender if the debtor is behind on their payments, without a court order.
Prior to the changes to the bankruptcy law in October 2005, many states did not require reaffirmation agreements, especially on a car. This was called a "ride through" agreement, where as long as the debtor was current on their payments they would get to keep the car. The obvious advantage to not signing a reaffirmation agreement in a bankruptcy filing is the liability on the note is removed. The lender could still repossess the car but they couldn't come after the debtor for loss or damages. Some states still don't require reaffirmation agreements and accept the concept of the ride through. Many bankruptcy attorneys try to stop their clients from signing any kind of agreement because of the potential liability. Because the law varies so much across the US, it's best to consult with a local bankruptcy attorney and find out the laws for the Bankruptcy Court District that the person is filing in.
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