A fellow bankruptcy attorney recently posed an interesting question regarding a threatened foreclosure sale before the automatic stay is lifted in a Chapter 13 bankruptcy. Here is the exchange I had with her:
I just got an email from a Chapter 13 client who has a confirmation hearing on 8/21. She told me that auction.com just came by her house and posted a sign that her house is up for auction on 8/14. There has been no relief from the automatic stay issued in this case, nor has a motion for relief from the automatic stay been filed. When we filed the case in March, we stopped a foreclosure action and the client was going to try to save her home so we put the arrears and some IRS tax debt in the plan. Her original confirmation hearing was on 6/21 but the Chapter 13 Trustee’s office continued it to 8/21. In the interim she lost one of her jobs and decided that she would just surrender the home and pay the priority tax debt in the plan. We amended the plan indicating that she would be surrendering the home, but no arrangements have been made yet on the terms of the surrender.
Doesn’t the bank still need relief from the automatic stay to auction the house?
I. The Terms Of The Confirmed Plan Will Bind The Debtor
The Bankruptcy Code provides: “[T]he court shall confirm a plan if — . . . [for an] allowed secured claim provided for by the plan — . . . the debtor surrenders the property securing such claim to such holder . . .” 11 U.S.C. § 1325(a)(5)(c). Thus, your client is entitled to propose a plan in which she surrenders her home to the creditor holding the first mortgage. Once the Court confirms the plan, its provisions will “bind the debtor . . .” 11 U.S.C. § 1327(a), meaning that she will have to surrender the home.