Losing Redemption Rights in a Chapter 7
After most foreclosure sales in Michigan, the homeowners have the right of redemption for six months. This means that they have an extra six months after the sale date before they have to move. The homeowners can also use the six month redemption period to sell the home or to redeem the home by paying the mortgage company the redemption cost which includes foreclosure attorney fees and costs. This right of redemption can be affected if a homeowner files a Chapter 7 bankruptcy petition.
In a Chapter 7 bankruptcy case, all of the debtor’s assets become property of the bankruptcy estate. However, debtors can keep exempt property. If a debtor does not completely exempt his or her right the redeem a home, the trustee can redeem the home by paying the mortgage company the amount of the bid at the foreclosure sale. Then, the trustee can sell the home for a profit. This usually only becomes a problem if the debtor hopes to remain in the home for the entire six month redemption period. Also, the debtor may be inconvenienced when the trustee wants potential buyers to view the home.
Detroit Chapter 7 bankruptcy trustees have been redeeming foreclosed homes in order to obtain significant money for creditors. In many cases, they redeem the homes even after the debtor receives the bankruptcy discharge by keeping the case open or by reopening the case at a later date. Therefore, a Chapter 7 debtor who receives a bankruptcy discharge might still lose the right of redemption if his or her home is sold at a foreclosure sale.