Does Bankruptcy Stop Foreclosure?

Yes. As soon as debtors file their voluntary petitions, Section 362 of the Bankruptcy Code stops most creditor adverse actions. Additionally, consumer bankruptcy exempts home equity, making it almost impossible for the trustee (person who manages a bankruptcy for a judge) to liquidate a home. Some informal exemptions are available that extend this protection even further. But that’s the subject of a different blog.

Only a Chicago bankruptcy lawyer maximizes the Automatic Stay and other positive effects of bankruptcy. An attorney also minimizes the negative effects which aren’t as bad as some people believe they are. Non-lawyer bankruptcy petition preparers cannot perform these services. BPPs can only type forms. It’s tempting to partner with a BPP and save some money. But this partnership usually costs much more in the end, mostly because a BPP cannot adequately protect your home and your other important assets.

The Automatic Stay

Courts have consistently ruled that bankruptcy filers are entitled to a fresh start, if these debtors were honest, yet unfortunate. Debtors can’t get fresh starts if they lose most of their assets. Instead, they must go back behind the starting line.

In addition to home foreclosure, the Automatic Stay prohibits most other forms of adverse creditor actions, such as:

• Vehicle repossession,
• Wage garnishment,
• Bank account levy,
• Creditor harassment,
• Eviction, and
• Utility shutoff.

As a general rule, these adverse actions are fairly easy to prevent, if the debtor files bankruptcy and qualifies for the Automatic Stay, as outlined below. However, these adverse actions are very difficult to undo. So, if a private creditor, like a bank, or a public creditor, like the IRS, threatens your property, reach out to a lawyer as quickly as possible.

Possible Limits

In most cases, the Automatic Stay takes effect immediately and remains in full effect until the judge closes the bankruptcy. This feature is especially important in Chapter 13 bankruptcies. Creditors cannot pressure debtors, or even communicate with them, as long as the protected repayment period lasts.

As a side note, since the Automatic Stay technically prohibits all communications between debtors and creditors, many creditors suspend automatic payment arrangements and stop sending bills. These bills must be paid as agreed.

The serial filer rule could limit the duration of effects of the Automatic Stay. Furthermore, a Chicago bankruptcy lawyer must deliver actual notice to all affected parties.

Debtors cannot repeatedly file bankruptcy to frustrate creditors. The serial field rules vary in different jurisdictions. However, in most cases, if the debtor has filed once within the last six months, Section 362 usually takes full effect. If the debtor has filed bankruptcy twice, the effect is limited or unavailable.

On a related note, creditors can also ask the judge for permission to bypass the Automatic Stay, if the debtor threatens the collateral (e.g. Imma burn the house down).

Additionally, all interested parties must receive actual notice of the filing. Foreclosure usually involves multiple parties, such as the bank that loaned the money, the servicing company that manages the loan, the foreclosure company that verifies the property’s condition, and the auction house selling the home.

Work With a Savvy Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a confidential consultation with an experienced back taxes lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Source:

law.cornell.edu/uscode/text/11/362