Lumbleau Real Estate Schools

Question:

A person and his property that is encumbered by a first deed of trust are in
Chapter 7 bankruptcy. Under these circumstances, the:

Answers:
A. debtor can sell the property.

B. debtor need not make payments on the promissory note secured by the
first trust deed.

C. holder of the first deed of trust can foreclose. (Correct answer)

D. court can sell the property and use the proceeds therefrom to pay debts
owed to unsecured creditors. (Your answer)

Textbook:

The filing of a bankruptcy petition operates as an automatic stay (effective

as of the date of filing) to certain kinds of creditors' actions against the
bankrupt debtors or their property. Some of these would be: (1) actions to
begin or continue judicial proceedings against the debtor, (2) actions to
create, perfect or enforce a lien against the debtors' property (foreclosure
actions); without court permission.

Rationale:

The trust deed is a voluntary lien, specifically naming a beneficiary. In

bankruptcy, the court will release the property for foreclosure by the trustee
named in the deed of trust. These funds will go to the beneficiary named in
the trust deed.