Many Colorado residents have family members serving overseas in the military. Others may not have a direct personal relation, but they support the troops and their sacrifices. Many have expressed their support in more ways than one, including through support to those service members who are struggling financially and who may need to file for Chapter 7 or Chapter 13 bankruptcy.
It appears some of the nation's largest banks did not share some of this same support. News recently surfaced that several big banks wrongfully foreclosed on the homes of more than 700 military members. What's more, the banks even seized homes from borrowers who were current on their mortgage payments.
The wrongful foreclosures had previously been the subject of a settlement deal, but it appears there was a larger problem than initially indicated. The improper foreclosures are a violation of federal law, which prevents a bank from foreclosing on an active-duty service member unless the bank gets a court order.
In addition to the federal law protecting service members, Chapter 13 bankruptcy protects debtors from creditors who are attempting to collect on debts. When Chapter 13 is filed, an automatic stay goes into effect that forces a creditor to stop foreclosure and other collection activities.
Accordingly, any lawsuit that is ongoing must be stayed with respect to collection activities. The creditor also is prevented from reporting debt to credit reporting agencies during this time. Finally, the debtor's property may not be seized by creditors, although there are some exceptions for ongoing collection activities pertaining to child support and taxes, for instance. Ultimately, these protections can help a debtor who is going through financial struggles to organize their finances and become current on their payments.
Source: NY Times, "Banks find more foreclosure problems," William Alden, Mar. 4, 2013