Can a husband or wife get a second chance to stop a foreclosure sale of the marital residence in a chapter 13 bankruptcy case?
Yes, a husband or wife can often get a second chance to stop a Virginia foreclosure sale in a chapter 13 bankruptcy case. As discussed in answer to the question, “Must both husband and wife file bankruptcy together to protect the marital residence from a foreclosure sale in Virginia?”, a bankruptcy filing by either spouse can protect the marital residence from a foreclosure sale. Unfortunately, not all chapter 13 bankruptcy cases are completed successfully without any problems. In fact, statistics inform us that only about a third of all chapter 13 cases are successfully completed. Bankruptcy By The Numbers, Measuring Performance in Chapter 13: Comparisons Across States, Gordon Bermant and Ed Flynn (1998).
The husband or wife filing bankruptcy may lose a job, suffer an illness, or encounter unanticipated emergency expenses that prevent that spouse from making the mortgage payments or the plan payments. The repercussions of a default in payments could be a motion for relief from the automatic stay filed by the mortgage lender or a motion to dismiss filed by the chapter 13 trustee. What are the remaining options for saving the marital residence?
In the event of missed mortgage payments, the debtor spouse may file a modified chapter 13 plan that includes the missed post-petition mortgage payments in the arrearage amount to be cured under the plan if equitable grounds exist, as recognized in Matter of Mendoza, 111 F.3d 1264 (C.A.5 (Tex), 1997).
In the event of missed plan payments, the debtor spouse may file a modified plan to match the proposed chapter 13 plan payments to the actual plan payments made, thus curing a default in plan payments. Alternatively, the debtor spouse may allow the case to be dismissed on the chapter 13 trustee’s motion, preserving the debtor spouse’s right to refile a second chapter 13 case if and when conditions improve and start over in a better position.
Alternatively, the nonfiling spouse on title to the marital residence, or liable on the mortgage loan, may decide to file a chapter 13 bankruptcy case to stop a foreclosure sale and cure the mortgage arrearage through a plan.
Finally, even though the mortgage lender may have obtained relief from the automatic stay in bankruptcy, the mortgage lender may still be willing to enter into a modification agreement or forbearance agreement with the homeowners. All homeowners are encouraged to attempt to work out a solution to a mortgage default with their lenders in or out of bankruptcy, starting with the Making Home Affordable government website at http://www.makinghomeaffordable.gov/ Homeowners are well advised to be careful, however, about foreclosure rescue scams and mortgage modification scams promising high success rates, claiming insider information, and requiring money upfront.
You should consult with your Virginia bankruptcy attorney or divorce lawyer regarding all of your options to save the marital residence in the event of separation or divorce.