Whether in a Chapter 7 or a Chapter 13 bankruptcy, a lender has the right to file a Motion to Lift Stay, to get at their collateral. This is typically only done by a lender when the debtor is not current, and if it is done when the debtor is current, then the debtor has a valid defense.
A lot of times when debtors get notice of hearing for the Motion to Lift Stay, they will ask me if they have to move out of their house on that day. The answer is no, and here is why.
Without filing a Motion to Lift Stay, a lender cannot assert its non-bankruptcy rights of foreclosure, because the debtor is protected by the Automatic Stay. Therefore, a lift stay order is not a foreclosure order. Rather, it is just an order allowing the lender to pursue its foreclosure rights through applicable state court methods.
In other words, once the lender is successful in its lift stay motion, it does not get to foreclose right away. Instead, the lender now has the same rights of foreclosure it had prior to the debtor filing bankruptcy. That means the lender must still follow the state law method of foreclosure, and it must start this process from scratch.
In Georgia, the lender must advertise for four weeks in the legal organ for the county of the property. It also must send certified notice to the debtor a month prior to the foreclosure sale. Doing the math, the lender cannot actually foreclose on the property until at least a month after the lift stay motion is granted.
Furthermore, lenders are not always chomping at the bit to foreclose. Often they do not want the property in their name for quite some time. Thus, they might go months after a lift stay motion without initiating a foreclosure sale, if at all. The lift stay motion might have been solely about drumming up attorney fees.
As a debtor, you have several options after the lift stay motion is granted. While you could move out right away, you could also wait to move until the foreclosure notice. Additionally, you could also ask your lender about renting the property or perhaps offer a cash for keys exchange to move out of the property early. The good news for the debtor is he/she is not reaffirming the mortgage, so the mortgage note is discharged regardless of when the lender ultimately forecloses. And if the bank takes it time to foreclose, the debtor can take advantage of this arrangement to continue to live in the property, perhaps even rent free. That is especially important because any place the debtor would likely move, he/she would instantly begin paying rent.
However, it is important to note that until the property is ultimately foreclosed upon, the debtor is still on title. Being on title, the debtor is liable for any injuries on the property, code violations and association dues. Therefore, the debtor should make sure to keep the property up to code, pay post petition filing date association dues and maintain insurance on the property until title switches hands. The last thing a debtor wants to do after filing bankruptcy, is to incur post petition debts relating to a property they are no longer living in. As those debts would be incurred after the filing date, they would not be discharged in the debtors bankruptcy case.
For an additional perspective on the pros and cons of walking away prior to a foreclosure sale, read this.
All good points. By example, in one of my recent bankruptcy cases, it was more than SIX MONTHS between the order for relief from stay in the Chapter 13 and the filing of the FIRST STEP in a California foreclosure. There often seems to be no connection or communication between the lawyers for the banks who appear in bankruptcy court and the foreclosure arm of the same bank. Go figure.