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 is discharged.
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.