Mortgage companies and those who perform foreclosures for them are all too familiar with debtors filing for bankruptcy protection just before the sale occurs.
In most cases, the fact of the filing will come to the attention of those conducting the sale. Then, after a quick review of prior bankruptcy history, a determination is made as to whether a stay went into effect with the filing of the present case. If so, the sale is cancelled.
Occasionally, however, word of the bankruptcy does not arrive until after the sale has been conducted, and if a stay had arisen, the sale must typically be rescinded.
But under 11 U.S.C 362(b)(21), which was enacted under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), it is now possible to save that post-bankruptcy sale if there was a prior case that was dismissed within 180 days of the filing of the present case. Saving the sale is possible even if a stay would otherwise have arisen in the present case.
The circumstances of the dismissal of the prior case should be examined. If an argument can be made under 109(g)(1) that the prior case was dismissed due to willful failure of the debtor to abide by orders of the court or to appear before the court in proper prosecution of the case – or if under 109(g)(2), the prior case was dismissed voluntarily following a motion for relief from the automatic stay – then section 362(b)(21) now makes it clear that a foreclosure sale conducted after the filing of the present bankruptcy would not be in violation of the stay of section 362(a).
Of course, it is necessary to get a court order that agrees with your assessment that the debtor is not eligible to be a debtor in the present case due to the circumstances of the dismissal of the prior case.
Obtaining this court order should be done by way of a motion to dismiss the present case due to the debtor's ineligibility to file within 180 days of the dismissal of the prior case pursuant to 109(g). The motion should also request that the court, in dismissing the present case, find that section 362(b)(21) is applicable.
Often, the last-second bankruptcy filings to prevent foreclosure are filed pro se. A side effect is that the filing of the bankruptcy may not come to the attention of those conducting the sale, which results in the post-bankruptcy sale in the first place.
However, if the debtor is pro se, it is very likely that he or she will not respond to your motion, and you can fairly easily get your order declaring that the present case was filed by an ineligible debtor, that section 362(b)(21) therefore applies, and that the post-bankruptcy sale was not in violation of the bankruptcy stay of 362(a).
If the debtor is represented by an attorney, then it may be more difficult to get an order. They will present arguments that the prior case was not dismissed for willful failures of the debtor, or that the literal language of 109(g)(2) should not apply for one reason or another.
But depending on the circumstances of the prior dismissal, it may be possible to save the sale even if the debtor has effective counsel in the present case. And considering the expense of carrying the foreclosure process all the way up through the sale, it may be worth a try if the mortgage company feels strongly that it does not want to set aside the sale and participate in another bankruptcy.
Robert Moss is an attorney with Wilson & Associates, primarily focusing on bankruptcy. He can be reached at (501) 219-9388.