Preventing Bankruptcy Auctions

Many economists have predicted that the recent economy can be compared to the recession experienced by Americans during the 1930’s depression era. With the unemployment rate hovering at 9.6%, individuals are feeling the pinch and many are unable to meet their financial obligations. Bankruptcy auctions and foreclosures seem to be happening more frequently.

Federal Bankruptcy & the Automatic Stay

Whenever you file for bankruptcy, the federal court will issue an automatic stay, also known as the “Order for Relief”. This means that the creditors must cease and desist all adverse actions against the debtor regarding their collection activities. If your home is scheduled for foreclosure, the sale will be temporarily postponed while the bankruptcy proceeding is underway. The time period usually ranges from three to four months, yet there are exceptions to this general rule:

• Filing a motion to lift the stay—A lender has the right to seek permission to proceed with the sale by lifting the stay if they can prove that the debtor has no monetary means to pay back the loan.

• The Cram-Down—In a Chapter 13 bankruptcy, the court will allow the debtor to devise a plan to reorganize their debts to formulate a schedule on how they plan to pay back their creditors. Even if all of the parties don’t agree on the plan, the federal judge can order that the creditors “cram down” and accept the method of debt restructure, even when there is no consensus.

How to Prevent a Bankruptcy Auction

If you file a Chapter 13 bankruptcy, this will allow you to make up any late payments on your house to the mortgage company. The length of the repayment plan is usually a period of three to five years. If you are successful in making all of the required payments, you may be able avoid foreclosure and keep your home. In some cases, you may be able to refinance your home with a new loan.

Consulting a Bankruptcy Attorney

If your home is set for foreclosure, filing for bankruptcy protection can temporarily stop this process. The new federal bankruptcy laws that went into effect in 2005 requires anyone who files for bankruptcy to attend credit counseling within 180 days prior to filing their petition. Therefore, it is important that you don’t wait until the last minute. There may be other options to save your home, but it’s best to consult an experienced bankruptcy lawyer for advise regarding your particular case.