Bankruptcy 101

Generally Speaking: There are three kinds of Bankruptcy. Chapter 7, 11, and 13. Once any of these chapters have been filed, any collection efforts must stop. The bankruptcy goes into a pending status giving the payor an "Automatic Stay." On the other hand the creditor can get a special court permission, call a "Relief From Stay," to continue collection efforts. It's in your best interest not to violate the bankruptcy stay, but don't throw in the towel either.

Note holders don't realize that just because the payor stops his payments and files bankruptcy that they are at a loss. The myth "If they file bankruptcy, I'll loose everything" is in most cases not true. Mostly the attorney representing the note holder can get the "Relief From Stay" to make sure the foreclosure proceeding continues.

Filing Chapter 7: Here the debtor wants to avoid payments of his debts. Simply put, any unsecured depts like credit cards can be "discharged" and the debtor has no future liability to the cardholder. Unfortunately secured debts like a mortgage can not be "discharged." A note secured by either a deed of trust or a mortgage are considered secured debts.

If you are the creditor with a secured debt, it is usually not necessary to file a "Bankruptcy Proof of Claim" until the bankruptcy is over. This can take 4-6 months. Then you can proceed with reclaiming your dept. It is in your best interest not to wait for the courts decision because if your in a hurry to get your property back or if there are any senior liens that can get a "relief from stay," you can be wiped out, while waiting on the court.
Filing Chapter 11: Here the debtor has a lot of debt and is trying to "re-organize". This can work well for airlines, but generally not individuals (If an individual tries it, they will eventually be converted to a Chapter 7). Don't panic! Hire a bankruptcy attorney immediately because Chapter 11's can last for several years. Aggressive action is recommend because of the time it takes and because they are the choice of "bad faith filers" and scam artists.

Filing Chapter 13: In this type of bankruptcy, if an individual is showing a sincere effort to catch up on their debts, a debtor is allowed, by the court, to pay the overdue amounts using a 36 to 60 month payment plan. The filing date is very important! Everything overdue on that date, referred to as the "per-petition debt" can be paid using the payment plan, but everything accruing after that date, referred to as the"post-petition debt" must be paid on time or the creditor can get a "relief from stay" and continue collection efforts. In many Chapter 13's you'll find that they are dismissed because the payment plans are not kept up.