Bankruptcy and Foreclosure: Five traps for the business owner to avoid

I work with a lot of businesspeople who are facing foreclosure because of a poor business climate, or because of the real estate market turndown.

What surprises me is that so many business people do not know about their options with
regard to bankruptcy and foreclosure.

People in the foreclosure process should always visit a bankruptcy lawyer. This article explains four little-known traps about bankruptcy and foreclosure.

Once you learn you can use to make more intelligent decisions when working with your lawyer.

Bankruptcy and foreclosure traps

Trap #1: Thinking bankruptcy will stop foreclosure

The truth is that bankruptcy only temporarily stops the foreclosure process. Your lenders will go to court and ask for a “relief of automatic stay”. The court almost always grants this motion, and the lender can then go through with your foreclosure.

Trap #2: Thinking bankruptcy lets you stay in your home

Bankruptcy will only let you temporarily remain in your home unless you can come up with the monthly payments.

Trap #3: Thinking bankruptcy is “no big deal” today

Just filing for bankruptcy will lower your consumer credit FICO score often by 150 to 200 points. That is a big deal indeed.

Even worse, bankruptcy remains on your credit report for ten years. And it is a public record that others can find out about in moments. Potential business partners and certain employers will not want to hire a person who recently filed for bankruptcy.

Buying a home by qualifying for a home loan will be difficult for about two years. Some credit card companies will offer a person credit cards as soon as the court grants the final bankruptcy discharge, because that person now has no more secured debt. But rebuilding credit takes several years.

Alternatives to bankruptcy may be better

Knowledge in this area really is power. Some bankruptcy attorneys may be a bit too quick to encourage you to file for bankruptcy protection. They view many business problems as solvable through bankruptcy.

But it may pay for you to consider other options. If you can’t make the payments on your home or on properties, you may be better off letting the lender foreclose.

If the lender pursues you afterwards for a deficiency, remember that this debt is unsecured and can be discharged through bankruptcy. Lenders rarely pursue debtors for deficiencies after foreclosure anyway, partly because the debtor can always file for bankruptcy and the lender will get little or nothing.

Also, people do not realize how they can negotiate with creditors like credit card companies, banks and even doctors and hospitals. People who know how can work out agreements they can live with, that will keep them out of bankruptcy and allow their creditors to get more money than they otherwise would.

It always pays to know what bankruptcy can and cannot do, to make intelligent decisions.