This question has probably never been more pressing. In a pair of 2017 decisions (Henson v. Santander and Midland Funding v. Johnson), the Supreme Court significantly expanded debt collectors’ power under the Fair Debt Collection Practices Act. Before these two decisions, moneylenders often shied away from court cases. They did not want judges to scrutinize their unfairly aggressive tactics. Now, such fears may be a thing of the past. Many debt buyers may file suit after just one or two extremely threatening letters, even if these debt buyers have little basis for their actions.
In most cases, Minnesota bankruptcy petitions automatically stop judgements. Debtors need not prove fraud, misrepresentation, or even negligence. In many cases, bankruptcy may even prevent the moneylender from resuming its adverse action after the bankruptcy is closed. This power is available in three different key areas.
Bankruptcy and Home Foreclosure
Minnesota is a non-judicial foreclosure state. So, banks can foreclose without going before judges. However, a significant number of these cases still involve civil lawsuits. In the 2012 National Mortgage Servicing Settlement, the major mortgage service companies agreed to make the process less unfair. However, as is often the case with moneylenders, banks routinely break the rules if they think they can get away with it.
Bankruptcy stops foreclosure judgements. It does not matter if the bank just filed the case or if the judge is about to authorize adverse action.
The same thing happens in non-judicial foreclosures. It does not matter if the sheriff is about to sell the property to the highest bidder at a foreclosure sale. Once any creditor, or an agent of a creditor, receives notice, the automatic stay takes effect.
Bankruptcy provides long-term, sustainable solutions as well. Chapter 13 debtors get up to five years to catch up on past-due payments. As long as they remain current on the monthly debt consolidation payments, the banks can generally do nothing.
Furthermore, the strip-off may result in lower payments. Many Minneapolis homeowners borrowed money against their home equity (a HELOC, or home equity line of credit) during the 2000s housing bubble. Then, these families saw their property values plummet during the Great Recession. This combination put many of them in a bind.
Assume Harry Homeowner has a $250,000 Minneapolis home that’s now worth only $200,000. He also has a $50,000 HELOC. A Minnesota bankruptcy attorney can strip off the second lien, because the house’s value is not high enough to secure them both. Instead of a secured second mortgage, Harry’s HELOC is now an unsecured loan that’s subject to discharge. So, Harry could save hundreds of dollars each month.
Bankruptcy and Collection Lawsuits
The same process holds true in collections actions. As mentioned earlier, moneylenders and debt buyers will probably file many more of these actions in the near future. The automatic stay stops them. An attorney simply files a suggestion of bankruptcy. With a few exceptions, most notably some family law actions, the civil action comes to a screeching halt.
The moneylender will probably not be able to take up the lawsuit again after the bankruptcy is over. It is illegal for moneylenders to pursue debts that have been discharged in bankruptcy. If the account is big enough, moneylenders will most likely file lawsuits anyway and hope for the best. So, be prepared.
“Discharge” does not mean that the debt goes away. It is still there. However, bankruptcy eliminates the legal requirement to repay that debt. So, the moneylender, or a subsequent debt buyer, has no basis for a lawsuit.
Bankruptcy and Evictions
In the 2005 bankruptcy reform law, Congress changed the rules in this area. Before, a tenant could file bankruptcy and stop an eviction even if the sheriff was about to change the locks. Now, bankruptcy stops an eviction lawsuit but it does not prevent any post-judgement eviction activities, in most cases.
Many times, tenants have a plausible defense to eviction actions. But due to the expedited timetable in Minnesota justice courts, they do not have a full chance to present them. If the dispute continues in bankruptcy, the judge usually orders the matter to mediation. There, landlords have a duty to negotiate in good faith. In other words, they must make compromises to end the dispute. The judge will not tolerate a hardline “pay what I say you owe or get out.”
Bankruptcy stops most civil and quasi-civil proceedings and also provides long-term solutions. For a free consultation with an experienced bankruptcy attorney in Minneapolis, contact Kain & Scott. Convenient payment plans are available.