When Can Banks Sell Houses if Homeowners File for Bankruptcy?

Banks can sell houses whenever they choose after completing foreclosure proceedings. Foreclosure is possible even if the homeowner files for bankruptcy. Bankruptcy usually delays foreclosure for about three or four months, but cannot stop the process completely if the property owner is unable to make payments.

Timetable

It is impossible for anyone to predict precisely when the bank will sell the house after foreclosure -- or force the former owners to leave. According to Nolo.com, banks sometimes take three to six months after foreclosure to serve a preliminary eviction notice, called a "notice to quit." The notice demands that the occupants move out of the house within 30 days or face formal eviction. The process means the former owner theoretically could live in the home for free for nearly a year. That includes about three or four months of stalling foreclosure through the bankruptcy process, and up to about seven months before the bank obtains eviction orders.

Protection

A provision called "the automatic stay" protects debtors during bankruptcy -- and stalls foreclosure. Once the debtor files for bankruptcy, all debt collection action must stop, including foreclosure. Most people choose Chapter 7 bankruptcy, which is the simplest form of bankruptcy, or Chapter 13. Chapter 7 is the fastest of all bankruptcies and lasts only a few months. Chapter 7 has income limits that vary by state, and usually only those with low incomes qualify. Chapter 13 is open to everyone but requires a payment plan lasting three to five years.

Legal Motion

Banks seeking to foreclose and eventually sell a home get around the automatic stay by filing a legal brief called a "motion to lift the stay." The bank argues in bankruptcy court that the current owner cannot afford the mortgage payments and is using bankruptcy to stall. Bankruptcy courts usually grant the motion unless the debtor is attempting to work out a payment plan through Chapter 13. Chapter 13 allows the bankruptcy court to include delinquent payments in an overall debt payment plan lasting thee to five years. After that the debtor must begin making regular payments immediately. The measure allows the debtor to avoid foreclosure and a sale of the house.

Settlement

People considering filing for bankruptcy because of mortgage issues should consider alternatives if the foreclosure is their only issue. A reputable real estate attorney can ask the bank for a voluntary foreclosure that works for both sides. For example, a maneuver called a deed-in-lieu of foreclosure allows the homeowner to surrender the house voluntarily to the bank.