When Illinoisans file for Chapter 13 bankruptcy (in addition to bankruptcy under other chapters), they benefit from an automatic stay. This stay prohibits creditors from trying to collect on the debt. That means the end of harassing phone calls and a pause in any litigation, including foreclosures.
But a stay is just that - a pause. Secured creditors can ask the bankruptcy court to lift the stay within 30 days so that the creditor can move forward with a foreclosure.
In some cases, a court will decline. When this happens, courts will try to protect a secured creditor's interest in their collateral. For example, if a debtor wants to use, sell or lease collateral during a bankruptcy, the court will issue an order making sure that the creditor receives adequate protection.
Adequate protection comes in three main forms: periodic payment, additional or replacement liens and indubitable equivalent. In other words, a court may require a debtor pay a creditor cash or something similar for monetizing the property during the bankruptcy. Or the court may place some kind of a lien on the property. For instance, if the collateral was worth $100,000 and the creditor's security was for $70,000, then the court may add a new lien raising the creditor's security from $70,000 to a greater number. Or, finally, a court may conclude that a creditor is already adequately protected because the collateral is worth much more than the size of the debt.
Adequate protection is just one of many issues that may confront an Illinoisan filing for Chapter 13 bankruptcy. For help identifying and navigating those issues, Illinoisans may benefit from speaking with an experienced bankruptcy attorney.
Source: FindLaw, "Bankruptcy and the Secured Creditor," Accessed Nov. 15, 2016