What Is Bankruptcy?
Bankruptcy is a legal proceeding governed by federal law (the U.S. Bankruptcy Code) that allows debtors who cannot pay their creditors to get a fresh start. It is handled exclusively in federal bankruptcy courts, not state courts. For Florida property owners, bankruptcy is often used as a last-resort strategy to halt foreclosure or prevent creditors from seizing assets to satisfy an abstract of judgment.
The Automatic Stay
The most immediate and powerful tool in bankruptcy is the automatic stay. The moment a bankruptcy petition is filed, federal law prohibits almost all creditors from taking any collection actions against the debtor. For real estate, this means:
- A mortgage lender must immediately pause a pending foreclosure sale.
- A landlord is temporarily prevented from executing an eviction (though there are exceptions if the eviction judgment was already finalized before the filing).
- Creditors cannot place new liens on the debtor's property.
However, the automatic stay is temporary. A mortgage lender can file a "Motion for Relief from Stay" to ask the bankruptcy judge for permission to resume the foreclosure if the debtor is not making post-petition mortgage payments.
Types of Bankruptcy for Property Owners
- Chapter 7 (Liquidation) — The debtor's non-exempt assets are sold off by a trustee to pay creditors. However, thanks to Florida's incredibly strong homestead creditor protection (Article X, Section 4 of the Florida Constitution), a debtor's primary residence is completely exempt from liquidation, regardless of its value, provided the debtor has owned the home in Florida for at least 1,215 days (approx. 40 months).
- Chapter 13 (Reorganization) — The debtor keeps their property but must agree to a 3-to-5-year repayment plan. This is the primary tool used by homeowners to stop foreclosure, as it allows them to catch up on missed mortgage payments over 60 months while keeping the house.
- Chapter 11 — Used by businesses (and some high-net-worth individuals) to reorganize massive debt while keeping commercial real estate operational.
Related Terms
- Foreclosure — The action most commonly halted by bankruptcy
- Homestead Exemption — Protects the primary residence in Chapter 7
- Lien — Some liens can be stripped or discharged in bankruptcy
Barnes Walker Foreclosure Defense
While Barnes Walker does not file bankruptcy petitions, our attorneys frequently assist clients in exploring foreclosure defense strategies, short sales, and loan modifications prior to bankruptcy. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC