Chapter 18-1 Introduction

18-1 Introduction

The filing of a bankruptcy petition is a common occurrence during a mortgage foreclosure action. In general, the mortgagor may file under Chapter 7 of Title 11 of the Unites States Code,¹ which is the liquidation provision, or under Chapters 11 or 13, which are reorganization or repayment provisions, respectively.² Under Chapter 7, all of the mortgagor's non-exempt assets are liquidated to pay debts by an independent third-party trustee. Under Chapters 11 and 13, the mortgagor keeps his assets and uses his income to pay some of his debts over a specified period of time through a plan of reorganization (Chapter 11) or a repayment plan (Chapter 13). A Chapter 13 repayment plan typically lasts five years,³ but a reorganization plan under Chapter 11 can be much longer.

Bankruptcy law is controlled mainly by the Bankruptcy Code and cases interpreting it. However, the Bankruptcy Code and bankruptcy judges defer to state law on many issues, such as the nature of the mortgagor's interest in property. Bankruptcy courts are divisions of the federal district courts, and each has its own local rules and administrative orders.⁴ This section is intended to provide a basic overview of the effect of bankruptcy on a foreclosure action and is not a comprehensive discussion of bankruptcy law. Where a foreclosure is affected by the mortgagor's filing of a bankruptcy petition, a bankruptcy lawyer should be consulted to navigate the unique and voluminous laws pertaining to bankruptcy.

--------

Notes:

^[1] Herein abbreviated the "Bankruptcy Code."

^[2] Whether a...