D. Business Bankruptcy & Foreclosure
Types of bankruptcy
Corporations, partnerships, limited liability companies and individuals who operate businesses are eligible to file for bankruptcy under Chapter 7 or Chapter 11 of the Bankruptcy Code.
Chapter 7 (straight liquidation): A trustee may liquidate, or sell, the debtor’s non-exempt assets to satisfy all or a portion of the creditors’ claims. Any portion of debts not paid by the trustee is discharged, and the creditor cannot force the debtor to pay the remaining amount.
Chapter 11 (reorganization): Typically used by corporations or businesses that want to stay in business. A Chapter 11 reorganization is available to individuals, but it is typically an expensive process that is not frequently used by individuals. The debtor may keep its property, and agrees to pay creditors with future earnings according to a plan of reorganization.
When to file for bankruptcy
Anyone considering bankruptcy should consult with an experienced bankruptcy lawyer who can determine whether such an option would be appropriate, and when it would be most beneficial to file.
It may be appropriate to file for bankruptcy when: 1) a significant event occurs that would subject the business assets to a creditor’s claim; 2) the business is unable to pay its debts and regular operating expenses; or 3) it has property that it wishes to keep from the reach of creditors.
What is a Foreclosure
A foreclosure is a type of lawsuit. In a foreclosure case, a lender sues any borrower who has failed to make mortgage payments as required under the terms of the loan contract. The lender seeks a court order to sell the borrower’s real estate to raise money to pay off the debt owed to the lender.
How to prevent a Foreclosure
If you fall behind in your mortgage payments, contact your lender or its servicing agent immediately. Lenders do not want their customers in foreclosure, which is costly and time-consuming to lenders. They may help you see if there is a solution other than foreclosure.
The most frequent alternative to a foreclosure is a repayment agreement, sometimes called a forbearance agreement. The terms are flexible, but generally you will need to resume payments and make arrangements to pay the past due amounts over a short period of time. Another type of workout is called a loan modification. A modification can lower your principal balance or interest rate, or even extend the final due date of your loan to make current payments lower. A modification is like a new contract amending the prior contract.
Bankruptcy and Foreclosure
A Chapter 13 bankruptcy permits you to repay the delinquent amount you owe your lender over time, up to five years. You have to pay the regular monthly payments and an additional amount each month until the loan is current according to the contract. A Chapter 11 filing can provide much greater flexibility in how to deal with a delinquent mortgage loan. You should consult with a bankruptcy lawyer for assistance in determining what type of bankruptcy case might help you to avoid foreclosure.