Many private money (or "hard" money) lenders enjoyed the consistency of borrower payments during the economic boom. The recession has put a real squeeze on borrowers and many are now defaulting on their loans. While some may be angling for a "strategic default," many borrowers who wish to keep their home or their business will file a bankruptcy petition and seek the protection of the automatic stay to halt their creditors from foreclosing.
What does the Automatic Stay mean? Exactly what it sounds like, it stays all creditor acts until or unless the bankruptcy court grants the creditor relief from the automatic stay.
How does a creditor seek "relief from the automatic stay"? In the traditional loan secured by real estate, the creditor can allege that they are not adequately protected by a sufficient equity cushion or that the debtor does not need the property as part of their reorganization (Section 362). Often this requires an appraisal of the collateral to determine just what the equity cushion is.
Does the Debtor/Borrower have to make payments to the lender even during their bankruptcy? Depends. Again, this goes back to whether or not the Debtor is trying to reorganize their debt and their bankruptcy plan. In a Chapter 13 ("Wageearner") filing, the debtor is obligated to make post-petition payments. Alternatively, creditors can seek "adequate protection" payments in the alternative to terminating the automatic stay.
What if my loan is underwater? Beware the CRAMDOWN or LIENSTRIPPING. Here in Santa Clara county, there has a been a flurry of lienstripping where underwater junior liens are "stripped" -- but that is a topic for another day.
Practically any type of loan can be wrapped into the debt consolidation process. Common types include finance charges, late fees and overdraft charges, credit cards, personal loans, utility bills, medical bills, car loans, store cards, gas cards and back taxes. Unlike bankruptcy, in which debts are canceled and your credit rating collapses completely, debt consolidation loans are essentially a type of refinancing, where several old loans are replaced with a new one that has more favorable terms.
Posted by: Cheap Secured Loans | April 22, 2010 at 02:23 AM