Avoiding Commerical Foreclosure: Bankruptcy

One of the ways in which property owners can stop the commercial foreclosure process is to enter bankruptcy. A business may enter bankruptcy in the chapter that is representative of the actual business status, with smaller businesses qualifying, potentially, for Chapter 7 bankruptcy. Once the bankruptcy begins, the foreclosure process is halted immediately.

What Occurs in Commercial Foreclosure

In foreclosure, the lender on a piece of real estate, used for commercial purchases, such as retail or industrial needs, seeks a court order to obtain legal possession and the right to sell the property because the property owner, and borrower on the loan, has not kept the loan up to date. When a mortgage loan falls behind, the property securing it, can be turned over to the lender.

One of the ways to stop this from occurring is to file bankruptcy. When this happens, several things occur:

• The borrower alerts the lender of the pending bankruptcy. The lender will request the attorney handling the case's information or at least the file number.
• The bankruptcy court places an automatic stay on the property. During this time, any judgments or liens on the property are frozen.
• The bankruptcy court then takes ownership of the bankruptcy estate, which is likely to include the real estate.
• If the borrower is unable to make payments towards the loan on the property, the bankruptcy court may determine that the property should be sold and the funds sent to the lender and other creditors.
• If the borrower is able to make payments, but may need help with modifying the loan or otherwise getting caught up, the bankruptcy court may allow this to occur.

The final decision about what occurs within the bankruptcy is dependent on the financial state of the property, including the ability of the borrower to repay the loan. In some cases, bankruptcy is an opportunity for the borrower to get out of debts he or she is unable to repay according to the original terms. However, commercial foreclosure may continue if the property owner resumes payments and falls behind on those terms again.

Hiring an Attorney

Those facing commercial foreclosure should hire an attorney to handle their case. Individuals considering bankruptcy for commercial property, as a business, need to hire an attorney to help process the case, in most situations. An attorney ensures that the best interest of the property owner and filer are kept in mind throughout the process.