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Be cautious about filing for personal bankruptcy to avoid foreclosure

The South Florida Business Journal reports that real estate company Lauren Enterprises and two of its mangers in Coral Springs was recently hit with a $7 million foreclosure judgment in connection with a $3.77 million mortgage. In response to the foreclosure judgment, the company filed for Chapter 11 bankruptcy in order to “get some breathing room to negotiate with the bank.”

Filing for bankruptcy in order to put oneself in a better position to negotiate with a lender is not an uncommon tactic, and it also happens in personal bankruptcy filings. The reason why it can work is that a bankruptcy filing initiates an immediate automatic stay on all collection activities by creditors. Creditors are eventually able to request that the automatic stay be lifted, but there is a period of time that must lapse first. In some cases, a filing could spur a lender to negotiate. That being said, In many cases lenders who are unwilling to negotiate in response to earnest requests prior to bankruptcy are going to still be unwilling to do so once bankruptcy has been filed.

Filing for bankruptcy is never something to take lightly; one should always understand one’s alternatives prior to filing and have a plan for recovery once the process is through. This is especially the case when one files for bankruptcy in an attempt to prevent foreclosure. While this strategy can be useful in some cases, it often only buys the debtor a little more time. In itself, this isn’t necessarily a bad thing, but one needs to understand the risks before going through a process which will have a major impact on one’s credit.

Because of the nature of the different filings, Chapter 13 is a better option for those who want to keep their home and who have the financial means to pay back payments in the bankruptcy process along with current payments. Those who feel that such a filing could help them save their home should speak to an experienced bankruptcy attorney. 

Source: South Florida Business Journal, “Bankruptcy: Office condo owner files Chapter 11 to halt foreclosure auction,” Brian Bandell, July 23, 2014. 

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