In the Chapter 13 bankruptcy case Borgens, Charlotte P.; In re (Wells Fargo Bank Minn. v. Borgens), the bankruptcy court extended a stay of relief, giving a debtor more time to save her home from foreclosure despite the mortgage lender’s protests.

The details of the bankruptcy case:

“The debtor filed for Chapter 13 bankruptcy on March 15, 2004. A little more than one year later, a consent order was entered modifying the automatic stay to provide that the debtor was to make monthly payments of $431.04 to Wells Fargo Bank to satisfy a postpetition arrearage on her home mortgage in addition to the $918.77 regular monthly payment. If the debtor failed to make these pay¬ments, the order allowed the creditor to receive stay relief following the filing of an affidavit of default.”

Because the debtor had suffered a job loss, she failed to keep up her end of the bargain and the mortgage lender tried to foreclose by entering a motion of default three times. With the first two foreclosure attempts the debtor was able to resolve the issue; but upon the final attempt the debtor challenged the motion of default. The bankruptcy court ruled that although there was no dispute that the debtor was in default, they were going to allow her three additional months to 1) refinance or 2) sell the house for more than was owed to the creditor.

The bankruptcy court said: “While it is exceedingly rare for this Court to make a ruling relying in part upon its Section 105(a) authority, it concludes that permitting Wells Fargo to proceed immediately to foreclosure under the extraordinary circumstances presented here would constitute an abuse of process. The most important of those circumstances are (i) the major changes which have occurred since the entry of the Consent Order which exceed anything the parties might have reasonably anticipated at that time, and (ii) the large amount of equity appearing to exist in the debtor’s residence property. That substantial equity not only pro¬vides a very comfortable margin of adequate protection to the lien holders, but also signals the extent of the injustice which would be suffered by the debtor if the foreclosure were permitted to proceed apace without according to her a further reasonable opportunity to salvage a significant por¬tion of it to make a post-bankruptcy ‘fresh start’ a realistic and practical possibility.”

This is a great example of how bankruptcy can save troubled homeowners from foreclosure by giving them leverage they would never have if they negotiated with lenders on their own. The bankruptcy court saw that the debtor had lost her job; but had considerable equity in her home giving her creditors a measure of security. They also recognized that it would be a grave injustice to allow a foreclosure to proceed without putting forth every effort to save the home where the debtor had so much equity invested.