June 15, 2017
Any lender, no matter how big or small, has experienced or heard of a borrower filing a bankruptcy especially in California. The borrower will often file a bankruptcy when he/she is in default on the loan owed to the lender. Bankruptcy, depending on what chapter, enables the borrower to “buy time” by using the automatic stay to prevent foreclosure, and/or enables the borrower to force the lender to negotiate more reasonable loan terms, or have the Court impose more favorable terms for the borrower. Either way, a bankruptcy makes the lender go through several hoops before the lender could actually exercise its rights to its collateral by foreclosing on the property.
If a loan is current and the Debtor files a bankruptcy, the lender’s rights are often not affected by the bankruptcy. The Borrower is only filing the bankruptcy to eliminate other debt such as credit card debt or debts arising from lawsuits. If, on the other hand, the loan is not current and the borrower files a bankruptcy, the next course of action by the lender will depend on what bankruptcy chapter was filed.
If the Borrower files a Chapter 7 bankruptcy in California, and does not have equity in the property, the lender will more often than not be able to file a Motion for Relief from Stay. Once granted, the lender will be able to foreclose on the property. However, if there is equity in the property, a more careful examination will need to be conducted by a qualified bankruptcy attorney to determine if it is possible to file a Motion for Relief from Stay in that situation.
If the Borrower files a Chapter 13 bankruptcy in California, the lender may have to participate in the confirmation process. The Borrower will be able to propose a Plan that can either be accepted or objected-to by the Debtor. The Plan will propose a repayment of the amount owed to the lender. The payments will often be made through a Chapter 13 Trustee, who will make monthly disbursements to the lender to cure the default that existed at the time of filing. The lender may still be able to file a Motion for Relief from Stay if the Borrower stops making the mortgage payments (in addition to cure payment for pre-bankruptcy amounts due). A qualified bankruptcy attorney in California can examine the bankruptcy and determine if there are any grounds to object to the proposed plan by the Debtor, and if the California lender is entitled to file a Motion for Relief from Stay.
If the Borrower files a Chapter 11 bankruptcy, the Borrower would also have to propose a plan to pay the Lender’s claim, like in a Chapter 13 case. However, in a Chapter 11 case, the borrower may be able to take action against the lender that will impair/reduce lender’s claim significantly. As such, it is always recommended that a lender who is facing a borrower that had filed a Chapter 11 case (or any other chapter) consult with an attorney to determine what options are available. If the borrower is not performing as required, the lender would be able to get relief from the automatic stay.
Consult With A Qualified Attorney Now!
If you are a lender and need assistance with a bankruptcy case filed in California, contact Katz Law now! We are Los Angeles attorneys who have done a significant amount of creditor work and creditor representation.
Call us at (844) KATZ-LAW for a FREE consultation!