Over the last 30+ years of helping people file for bankruptcy protection the most concern by homeowners is if they will lose their home. My answer – “it depends”. Do you want to keep your home? If so, then make sure to pay the mortgage and homeowners’ dues. If the answer is ‘no’ then stop paying and we will talk about how long you have before the lender can foreclose (see article for more information).
What if you want to keep your home, but are behind in mortgage payments?
Don’t assume you know the answers – ask an experienced attorney.
For consumers there are two types of bankruptcy. The first is a chapter 7. In this bankruptcy you can keep your home, but only if you find a way to bring all your mortgage and HOA payments current (usually within just a few weeks or a couple of months). Some people elect to withdraw from their retirement accounts or borrow money from family or friends.
If you cannot bring your mortgage current in a few weeks then you can try a chapter 13. This allows you to make your new mortgage payment, plus pay extra to bring the missing payments current; usually paid out over a 3 to 5 year period.
WARNING: In Arizona almost half of all chapter 13 cases fail, assuming you work with a very experienced chapter 13 attorney. The failure rate for those not working with very experienced chapter 13 attorney is more than 98 percent.
So can you keep your home if you file for bankruptcy? “It depends”.
Update – if you fail to cooperate with the trustee you may find your home sold and you and your family out in the street.
Madatian v. Goldman (In re Madatian) CC-18-1166-FKuTa 9th Cir BAP, 2/11/19. This shows how dangerous it can be to assume filing for bankruptcy is under the debtor’s control (I would never allow a client to act in this way). Trustee filed a Motion for Turnover to compel debtor to vacate her residential property and turn over possession of the property and certain records. Trustee argued that debtor had failed to cooperate with the real estate agent’s efforts to market and sell the property. Specifically, the Trustee argued that debtor had a duty to cooperate and turn over all property of the estate. The Trustee’s real estate agent needed to inspect the interior of the residential property, take photos, and show the property to prospective buyers. The agent twice attempted to make these arrangements with debtor, but debtor did not respond.
At the hearing on the Motion for Turnover, the bankruptcy court ruled that the Trustee was entitled to turnover of the Residential Property and the records associated with certain rental property. Regarding the rental property records, the court required debtor to surrender the requested documents under § 521(a)(4). It also found that debtor was “interfering with the Trustee’s collection of rent from which to pay expenses and refusing to simply provide the documents containing the information necessary to pay the expenses ….” Finally, the court stated that the Trustee “is absolutely entitled to turnover of the residence.”
The court stated that the Trustee can evict an uncooperative debtor under § 542(a), and “there’s ample evidence demonstrating that this Debtor and her family will not cooperate with the [Trustee’s] efforts to market the residence and that turnover is necessary.” The court listed the various facts demonstrating debtor’s failure to cooperate with the Trustee: “(1) Ms. Madatian failed to file chapter 11 monthly operating reports; (2) she failed to file a disclosure statement; (3) she sent the Trustee an e-mail threatening civil and criminal prosecution if the Trustee or her agents “trespassed” on the Rental Property; (4) she stormed out of the § 341(a) meeting and refused to appear thereafter; (5) she refused to provide the Trustee with her tax returns and other requested documents; (6) she appeared to tell the tenants not to pay rent to the Trustee; (7) she did not respond to the real estate agent’s e-mails; and (8) she did not provide any evidence to contravene the declaration testimony offered by the Trustee.
The court concluded that Ms. Madatian’s “obstreperous conduct demonstrates there’s really no practical way for the Trustee and her broker to market this residence and show it to prospective buyers while the Debtor continues to occupy it.” The bankruptcy court issued an order granting the Motion for Turnover but allowed debtor a reasonable time to vacate the residential property.
By Diane Drain|Published On: May 23rd, 2018|Last Updated: July 19th, 2022|
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
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