What Happens to a House When Bankruptcy Is Dismissed?
When you file for bankruptcy protection, the bankruptcy court may either discharge or dismiss your case. In most cases, the court will discharge the bankruptcy, which gives you a fresh financial start. However, several circumstances may lead to bankruptcy dismissal. Failure to complete required credit counseling, filing paperwork late or failure to make court-ordered payments under a Chapter 13 filing can cause dismissal. Your creditors may take certain actions after a dismissal that can affect your home.
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Collection Activity
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A bankruptcy dismissal places you in the same financial position as if you had never filed the bankruptcy petition. If you were behind on your payments immediately before the filing, but your delinquency was not severe enough for the lender to pursue foreclosure, your mortgage lender will resume collection activity. This may include telephone calls, late notices and accumulation of delinquency fees. It may also include a demand letter, which requires you to catch up your delinquent payments by a specified date to avoid foreclosure proceedings.
Foreclosure
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If you file for bankruptcy protection after your mortgage lender initiates foreclosure proceedings, the filing automatically suspends foreclosure. However, if the court dismisses your bankruptcy case, your lender is free to resume foreclosure activity. The mortgage lender can typically sell the home at a public sale or through a real estate agent. After the foreclosure sale is complete, you must vacate the home. You may also be liable for a deficiency, which is the amount of mortgage debt and foreclosure costs not covered by the home sale amount.
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Judgment Lien
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If a creditor other than your mortgage lender has won a judgment against you for an unpaid debt, it can place a lien on your personal property, which includes your home. In some cases, a bankruptcy discharge removes the lien; however, the lien remains intact after a bankruptcy dismissal. This means that you cannot give away or sell the home until you satisfy the judgment secured by the lien. If your equity in the home exceeds your state's exemptions by an amount sufficient to satisfy a judgment debt, the creditor may petition the court to force the sale of your home.
Considerations
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As long as your mortgage lender did not initiate foreclosure proceedings before your bankruptcy filing, you may still work with your creditor to prevent foreclosure if your bankruptcy case is dismissed. You may negotiate a repayment plan or temporary forbearance with your lender, or apply for a mortgage modification to help make your mortgage payments more affordable. However, these strategies may not prevent loss of your home to a judgment creditor that holds a lien on your real estate property.
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