Bankruptcy/Debtor-Creditor Rights Blog

A VICTORY FOR CHAPTER 13 DEBTORS: DEBTORS’ RIGHTS IN PROPERTY EXTEND BEYOND THE FALLING OF THE HAMMER AT A FORECLOSURE AUCTION

Posted February 16, 2010

Author: Alex T. Gray

The Arkansas Bankruptcy Court recently extended a debtor’s right to cure an arrearage on a mortgage secured by the debtor’s personal residence beyond the fall of the hammer at a foreclosure sale.  The Court in In re Jenkins held that the debtor’s principal residence is sold for purposes of §1322(c)(1) of the bankruptcy code when, under the Arkansas Foreclosure Act, the consideration is paid and the Trustee’s Deed is delivered to the purchaser so that the purchaser’s rights cannot be unilaterally avoided and the purchaser has the right to legally enforceable possession.  At that point, the debtor is no longer entitled to cure the default as permitted by §1322(b)(2) of the bankruptcy code.  The Court found that the bankruptcy code’s use of the word “sold” in §1322(c)(1) implies the requirement that the foreclosure process, not just the sale, must be concluded before the debtor’s right to cure expires.

The In re Jenkins holding has provided defaulting debtors one last chance to cure the default after the fall of the hammer at a foreclosure sale.  Filing for Chapter 13 relief after the foreclosure sale, but before the trustee’s deed is filed, allows a debtor to cure the default in the debtor’s mortgage before losing all rights in the property.

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