Bankruptcy automatically stops creditor lawsuits, collections or repossessions.
The automatic stay under bankruptcy further transfers pending or future
collection and debtor-creditor cases from other courts to the bankruptcy
court. Your creditors can’t enforce prior judgments or liens against
you or your property. However, criminal matters and suits to collect alimony
or child support continue during bankruptcy.
The automatic stay also suspends a creditor’s rights to repossess
collateral. Still, a secured creditor can petition the bankruptcy court
for permission to foreclose by requesting adequate protection. A secured
creditor is any creditor with specific property as collateral to secure
their debt. Mortgages on real estate, security interests on personal property
or leases on equipment are examples.
If a secured creditor requests adequate protection, the bankruptcy court
must protect the creditor so his collateral isn’t impaired or diminished
by the automatic stay. This is important when collateral can lose value.
The bankruptcy court then requires sufficient payment to the secured party
to cover this depreciation. The creditor can repossess or foreclose on
the collateral if there’s no other way to protect the creditor.
The automatic stay ends when the case is closed, dismissed or the debtor
As you can see, bankruptcy won’t always protect against foreclosure
or repossession. You may
file Chapter 11, for instance, to delay foreclosure and gain the opportunity to sell or
refinance your property or to develop a reorganization plan to resolve
the problem loan.
But file bankruptcy with a realistic plan on how you will protect your
secured creditor who holds liens against assets that you want to retain.
You can abandon unwanted assets to your secured creditor. Any deficiency
will become an unsecured debt dischargeable in your bankruptcy.