Foreclosure and the Bankruptcy Automatic Stay
With working families falling victim to job losses the rise in bankruptcy filings over the past few years has been unprecedented. Add to the weak economy, high unemployment, the collapse in the real estate market and plunging home values and one can readily see why there has been an increase in Bankruptcy filings by distressed consumers.
In the past three years, more than 4 million consumers filed for bankruptcy matching the records levels reached before the changes in the Bankruptcy Act made it more difficult and costly for Americans to file for Bankruptcy protection.
One of the reasons for this spike in bankruptcy filings is record foreclosure rates. The rise in foreclosures have forced homeowners and investors alike to seek the protection of Bankruptcy Act and in particular the protection afforded by the Bankruptcy Act\’s automatic stay.
When a case is filed under the Bankruptcy Code it automatically triggers an stay against foreclosure by a bank or other secured lender against the debtor\’s home or other real estate.
The \” automatic stay\” provides a respite for the debtor by stopping the foreclosure. In this period negotiations can take place to try to resolve the difficulties in the debtor\’s financial situation, subject to the oversight of the bankruptcy judge
The relief provided by the automatic stay, however, is not without limits and may be lifted if a creditor can show that the stay does not give the creditor \”adequate protection\” or if it jeopardizes the creditor\’s interest in the property.
What this means in the context of foreclosure is that for the stay to remain in effect the homeowner or other real property owner, must demonstrate that the interest of the creditor in the property is not damaged by the stay.
Practically speaking, this means either of two things. The first, is that there is so much equity in the property that a temporary stay will not impair the creditors security. In a world of \”underwater\” real estate, however, most debtors do not have sufficient equity to provide \”adequate protection\” to the secured creditor. In these situations, in order for the stay to remain in effect the debtor will be required to make periodic cash payments in the form of monthly payments to the creditor so that the creditors\’ interest in the real property is not further impaired by bankruptcy and its stay.
Should the debtor be unable to provide \”adequate protection\” to the secured creditor, such creditor can obtain an order from the court granting permission to continue with the foreclosure.
Looking to find the best way to stop foreclosure, then visit www.palmspringslitigationattorney.com to find the best advice on foreclosure and bankruptcy for you.
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