Chapter 7 Bankruptcy Removes Liability From the Foreclosure and Makes You Debt Free
03 Mar 2010 • 09:07 PM • BusinessThe typical foreclosure is four months. Add to this the 2 to 4 months of being in default before the process is started, and most people generally will not be foreclosed on in under eight months. After foreclosure, the lenders still needs to evict the debtor, which may take another month or it so if you add a chapter 7 bankruptcy to the nine-month foreclosure process, it’s not surprising to see debtors in their homes for a year or more from when they last stopped paying. Moreover, since the bankruptcy has erased the personal liability of the debtor, there is no recourse the lender has against the borrower even if the foreclosure results in less than full payment on the loan. Additionally since some states have the one action rule, even post bankruptcy claims arising from staying in the property without paying will not result in any liability to the debtor.
When a person is in a bankruptcy filing, the lender’s choice is to non- judicially foreclose and forever give up their claim for money damages against the debtor, or, to judicially foreclose in a court of law and obtain a deficiency judgment against the borrower. Virtually all foreclosures are non-judicial foreclosures since the judicial foreclosure is very time-consuming, and even when the lender prevails, the debtor still has a one-year right of redemption, whereby the borrower can come back within one year, tender the amount due, and get their property back.
So if you are surrendering your house in Chapter 7, you can pretty much expect to stay there for at least six months to a year from your last mortgage payment. This monthly savings truly gives debtors a debt free bankruptcy fresh start.
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