Dina Lohan, the mother of the infamous actress Lindsay Lohan, filed a petition for Chapter 13 Bankruptcy earlier this week. Dina, who claims to be in the hole for more than $1.5 million, filed her bankruptcy petition just in time to save her Long Island mansion from being sold in a foreclosure auction.
How Does a Bankruptcy Petition Stop a Foreclosure?
When a Chapter 7 or 13 Bankruptcy petition is filed, an automatic stay immediately goes into effect. If the petition is filed before the house in foreclosure is sold, the automatic stay will stop the foreclosure process–potentially saving the house from being reclaimed by creditors. In Dina’s case, this keeps her from losing the 4,000 square foot mansion that was Lindsay Lohan’s childhood home.
However, this isn’t a “get out of jail free” card. Once the Chapter 13 Bankruptcy plan is accepted by the court, the debtor must keep the mortgage payments current on the house or risk having the creditor lift the stay. If the stay is lifted, the house is once again fair game for the creditors to take in foreclosure.
The bankruptcy courts are also exceptionally aware of any attempts to cheat the system. Multiple bankruptcy filings, purchases made immediately before filing, and attempts to add certain nonessential luxury items to your Chapter 13 payment plan may garner particular ire from the court.
What Else Does the Automatic Stay Protect?
An automatic stay in a bankruptcy proceeding protects the debtor from most collection activity from creditors that occurs outside of the bankruptcy. In addition to pausing a foreclosure, the automatic stay can also stop lawsuits, repossessions, and even bill collection calls. In some circumstances, if creditors violate the automatic stay, the bankruptcy court can order the creditors to pay the debtors for violating this injunction.
If you are located in Alabama, Mississippi or Tennessee, and need the help of an experienced bankruptcy attorney, please contact one of our locations nearest you for a free, confidential consultation with one of our licensed attorneys.