Bankruptcy may be a venue to explore if you are facing multiple credit issues including the loss of your primary residence through default on your loans. Here’s a quick take on Bankruptcy and how it relates to the foreclosure process. If you have further questions call the attorney at the end of this post:
Bankruptcy (Added in 2008): A distressed borrower can also seek protection under the United States Bankruptcy Code by initiating a proceeding in his local federal bankruptcy court. This will have the effect of imposing an “automatic bankruptcy stay” on all further proceedings by creditors and claimants against the borrower, save in bankruptcy court.
This stay applies to lenders and their servicers, including foreclosure agents. Ordinarily, a foreclosing lender is entitled on demand to obtain “relief” from the bankruptcy stay in order to proceed with its foreclosure. In certain complicated cases, or when the lender wishes to pursue other claims against the borrower, it might nevertheless decide to pursue its claims against the borrower in the bankruptcy proceeding itself. Bankruptcy law is a complex labyrinth, and this brief sketch is not intended to serve as any sort of definitive explication of the matter. As a general matter, bankruptcy would seem to make sense for a distressed borrower, if at all, only if he is at risk of owing a substantial deficiency after foreclosure, or if he also has other obligations that cumulatively have become unmanageable.
Bankruptcy law is now more complicated than ever, and a distressed debtor should seek financial and bankruptcy counseling from an attorney or financial advisor before deciding whether or not to seek relief. Bankruptcy obviously entails significant harm to the debtor’s credit rating.
At present, bankruptcy courts lack significant authority to modify contracts for loans secured by real property, but the U.S. Congress is currently contemplating giving these courts limited authority to modify certain kinds of loans secured by residential real property, so as to assist beleaguered homeowners who can no longer manage their home loans. If such a measure becomes law, it will probably concern only subprime mortgages that meet certain technical requirements. Information provided by:
Maldonado & Markham, LLP
402 West Broadway, 24th Floor
San Diego, California 92101
Telephone: (619) 221-4400
