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Using a bankruptcy filing to stop a commercial real estate foreclosure

On Behalf of | Jun 22, 2024 | Real Estate Law

Facing foreclosure on a commercial real estate property can be an understandably stressful experience for any business owner. If you’re currently navigating a risk of foreclosure on a commercial property that you own, know that you’re certainly not alone. According to the real estate data provider ATTOM, commercial foreclosure numbers from earlier this year were up 117% from the same time last year. 

Thankfully, filing for bankruptcy can provide a viable solution to halt foreclosure proceedings and create an opportunity to regain financial stability. Understanding how bankruptcy can stop a commercial real estate foreclosure is important for any business owner who is facing financial difficulties and who wants to be able to make sound, informed decisions about that situation accordingly. 

Automatic stay protection

One of the most powerful features of filing for bankruptcy is the automatic stay. When you file for bankruptcy under Chapter 7 or Chapter 11, an automatic stay will go into effect immediately. This legal provision halts most collection activities, including foreclosure proceedings. The automatic stay acts as a temporary shield, giving you breathing room to reorganize your company’s finances without the immediate threat of losing your commercial property.

Chapter 11 and Chapter 7 options

Chapter 11 bankruptcy allows businesses to restructure their debts and continue operations as they work through their financial challenges. Under Chapter 11, you can propose a reorganization plan that outlines how you intend to pay off your creditors over time. This plan can include modifying the terms of your commercial real estate loan, such as extending the repayment period, reducing the interest rate or even reducing the principal balance. By presenting a feasible reorganization plan, you can potentially negotiate with your lender and/or “simply” get caught up on your outstanding balance to prevent foreclosure and retain ownership of your property.

This kind of bankruptcy stands in contrast to a Chapter 7 commercial bankruptcy, which primarily focuses on liquidating assets to pay off debts. While a Chapter 7 filing can still provide a reprieve from foreclosure through the automatic stay, it may ultimately result in the sale of the property to satisfy creditors. As such, this approach is typically more suitable for businesses looking to wind down operations rather than restructure.

Whichever approach is more appropriate for your situation, seeking legal guidance can help you make the most out of a bankruptcy filing designed – at least, in part – to halt foreclosure efforts. 

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