Stop Foreclosure with a Chapter 13 Bankruptcy in Vermont

Homeowners can stop foreclosure with a Bankruptcy in Vermont

Case Law
IN RE: LEILANI TAYLOR; LEILANI TAYLOR v. VERMONT HOUSING FINANCE AGENCY
Docket No. 1:02-cv-214
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF VERMONT

286 B.R. 275; 2002 U.S. Dist. LEXIS 24075; Bankr. L. Rep. (CCH) P78,786
December 3, 2002, Decided
December 3, 2002, Filed

Facts: Debtor A secured a loan from mortgagee B upon the execution of a mortgage contract. A defaulted in the payment of the obligation prompting B to commence a foreclosure suit. On November 21, 2001, the state court decreed a Judgment Order and Decree of Foreclosure, slating May 21, 2002 as the redemption date. On May 17, 2002, just before the redemption date, A filed for bankruptcy under Chapter 13 of the United States Bankruptcy Code. A submitted a Chapter 13 plan on June 26, 2002 in which it was proposed reinstating the mortgage contract and resuming the mortgage payments. Mortgagee B objected and the Bankruptcy Court ruled in its favor, ruling that the bankruptcy petition had not stayed the expiration of the redemption period. The Bankruptcy Court reasoned that A's rights under the mortgage expired upon entry of the foreclosure judgment, notwithstanding the continued right of redemption.

Issue: Whether A is entitled to reinstate the mortgage contract upon the filing of bankruptcy notwithstanding entry of foreclosure judgment?

Ruling: Yes. The plain language of 11 U.S.C.S. § 1322(c)(1) provides an independent right to cure under the Bankruptcy Code, apart from the debtor's right to redeem under state law, which is itself extended by 11 U.S.C.S. § 108(b). Under the express terms of § 1322(b)(1), a homeowner can cure a default on her principal residence until that residence is sold at a foreclosure sale under the applicable nonbankruptcy law. There is also no doubt the debtor's rights to cure under state law are extinguished at the date of the foreclosure judgment. But A is not seeking to cure under Vermont's foreclosure law. Instead, A is seeking bankruptcy protection under federal law, and Section 1322(c)(1) creates an independent federal right to cure.

Lesson Learned: If a debtor-mortgagor intends to resume mortgage contract after a foreclosure has been commenced, he can do so by filing bankruptcy proceeding and avail of the "cure" provision under 11 U.S.C.S. § 1322(c)(1). A "cure" under 11 U.S.C.S. § 1322(b), leaves most of the terms of the underlying loan agreement in effect, and merely allows the debtor to reverse any acceleration of the loan, caused by default, so that the debtor can "catch up" on the defaulted amounts while maintaining current payments.

Written by Kevin Levonas and Jerry L.