Must both husband and wife file bankruptcy together to protect the marital residence from a foreclosure sale in Virginia?
As answered in the question, “Do I receive protection from my husband or wife’s bankruptcy?”, the automatic stay in bankruptcy protects a debtor who files bankruptcy, and in some instances a codebtor, from collection actions and foreclosure proceedings against property of the debtor or of the bankruptcy estate. A husband and wife who separate in Virginia may enter into a separation agreement or property settlement agreement in which one of the spouses remains in the marital residence pending a sale or refinance of the property. The purpose of the agreed upon sale or refinance is to release the liability of the spouse who is not occupying the property or agrees to transfer title. The husband or wife may agree to make the mortgage payments in lieu of support or to preserve the property until its final disposition. In some cases, the husband or wife with physical custody of the children may wish to remain in the marital residence until all of the children reach the age of majority.
Alternatively, a court may order either the husband or wife to make the payments on the mortgage secured by the former marital residence, while the divorce case is pending so the property will be available as a residence and for equitable distribution, or as a debt apportioned between the parties. Such a court order in a Virginia divorce case normally would not bind third parties such as the mortgage lender who holds a note secured by a lien against the property. After a foreclosure sale of the marital residence, the note holder could look to either the husband or wife, or both, for collection of any resulting deficiency in the payment of the note.
During the recent economic recession, more and more separated couples are not able to sell or refinance the marital residence due to a lack of equity in the property. In some instances, the spouse who has agreed to make the mortgage payments, or who has been ordered to make the mortgage payments, is not able to keep up with all his or her financial obligations and the mortgage will go into default.
Will the marital residence be protected from a threatened foreclosure sale by a bankruptcy filing by either the husband or wife? Yes, if the spouse filing bankruptcy is on the title to the real property or is a borrower on the promissory note secured by a deed of trust or mortgage on the real property, a bankruptcy filing by that spouse alone will stop a foreclosure sale of the real property in Virginia. It is not necessary for both husband and wife to file bankruptcy together as all the owners, or all the borrowers, in order to realize the benefits of the automatic stay in bankruptcy with respect to the marital residence; a filing by either spouse with an interest in the property or liability to the lender on the loan is sufficient. While a chapter 7 bankruptcy case by either husband or wife will temporarily delay the threatened foreclosure sale of the marital residence unless other arrangements can be reached with the lender, a chapter 13 bankruptcy case by either husband or wife can allow the parties to keep the house and cure the arrearage in the chapter 13 plan.
You should consult with your Virginia bankruptcy attorney to discuss how a bankruptcy filing may be used to preserve your marital residence.