For most people in the greater Milwaukee area, filing for bankruptcy is an admission of financial failure. This just simply isn’t the case. While the circumstances which may have compelled a person to file bankruptcy are unpleasant, filing a bankruptcy petition under either Chapter 11 or Chapter 13 can have an important curative effect: saving real property from foreclosure.
Businesses typically file a bankruptcy petition under Chapter 11, which contemplates the preparation of a plan of reorganization under which the company’s existing debts will be repaid over a period of either five years or seven years. Chapter 13 is used by individuals to achieve essentially the same outcome. In both cases, the filing of the bankruptcy petition invokes what is called the “automatic stay.” The automatic stay is an order that is issued by the bankruptcy court immediately upon the filing of the petition. The stay requires all creditors of the debtor to immediately cease collection activity, including foreclosure proceedings.
The automatic stay does not erase a mortgage loan or a lender’s right to foreclose. Instead, the stay buys significant extra time for the debtor to bring delinquent payments current and to renegotiate the terms of the loan. Banks are usually willing to engage in such a renegotiation because they would prefer receiving regular payments to taking possession of a property that can be difficult to liquidate. If the debtor has sufficient income, the automatic stay provides a chance to save property, including the family home, from foreclosure.
Anyone who is significantly delinquent on paying back a loan secured by a mortgage on real property may wish to consult an experienced business or bankruptcy attorney for advice on the bankruptcy procedures necessary to invoke the automatic stay and renegotiate the terms of the loan. Doing so could provide the financial relief they desperately need.
