(Bankruptcy, Foreclosure & Short Sales)
A previous Tucker’s Tip (#2–2011) discussed how a bankruptcy filing will cause problems and delays if the bankrupt seller is trying to sell his house. However, the bankruptcy filing will also stop any foreclosure of the bankrupt’s real estate. Immediately upon the filing of a Chapter 7 (liquidation) or Chapter 13 (wage earners plan), any pending foreclosure is cancelled.
There is an “automatic stay” of the foreclosure until there is either an order to lift the stay, abandon the property, or discharge the bankruptcy. Until this order is entered by the bankruptcy judge, all foreclosures are delayed. These orders can take months to be entered. It depends on how fast the lender acts to request that the stay is lifted, and then, once an order is entered, how soon it begins a new foreclosure proceeding.
In a short sale situation, a bankruptcy filing by the Seller can add additional months to obtain a contract and/or negotiate a successful short sale. In addition, the Seller may be able to continue to occupy the house.
The best advice for a seller contemplating bankruptcy is to consult with a bankruptcy attorney first, and then maybe a real estate attorney. If the seller has already filed a bankruptcy before listing the house, then the seller should consult with the bankruptcy attorney about when he can complete the sale of the property.