If you search the internet for real estate definitions or real estate vocabulary, you will find countless lists of terms; including bankruptcy, automatic stay, and foreclosure. Most of the definitions are very brief with only 1-2 sentences. While it’s great that the basics can easily be found, I thought it would be beneficial to offer more in-depth definitions, covering one topic a week.
When a person files for bankruptcy, the court issues a court ordered freeze, known as an "automatic stay", to all creditors. This court order mandates that any and all creditors pause their collection of debt from the debtor until the case is closed.
We experience this with many homeowners facing foreclosure. To stop (really just pause) the foreclosure process, some homeowners file for bankruptcy to get an "automatic stay" placed on the creditor foreclosing on the property.
"Relief from Stay"
One homeowner I spoke to recently is currently in the middle of this process. He was very surprised when the lender was issued a "relief from stay", terminating the automatic stay and allowing that lender to proceed with the foreclosure. A "relief from stay", also known as a lift or release of stay, is sometimes granted when it is suspected that the bankruptcy was only used as a delay tactic. It is also granted for several other reasons.
While it may appear to be a great way to get creditors off your back, filing for BK is very serious and should NOT be entered into lightly. It is a very serious step in your financial well-being. Definitely consult with a BK attorney before filing ANY paperwork.
If you are in foreclosure and thinking of filing bankruptcy, please seek legal advice first. If you are in foreclosure and are interested in selling your home to avoid the foreclosure and to avoid filing bankruptcy, then please do so ASAP. Timing is of the utmost importance in a foreclosure proceeding. And it negatively impacts your credit. Don't put it off! Make proactive choices for your future!