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Potential Federal Government Shutdown Could Affect Bankruptcies Nationwide

For the past several weeks, Congress has been attempting to pass a new federal budget. The deadline for a new budget was to have been yesterday. However, this morning President Obama signed a short-term spending bill that will keep the federal government running for another week, until Friday, April 15th, 2011.  The threatened shutdown would shutter all “non-essential” government activities, such as National Parks, Museums, and court buildings, including all Bankruptcy Courts.  Police, fire department, and other “essential” services would have continued uninterrupted.  The government would have also stopped paying paychecks to most federal employees.  This new bill extends the deadline for Congress and the President to continue negotiations for another week.  

The potential federal shutdown could have major ramifications for the Bankruptcy Courts and its effect on the national foreclosure market.  Many struggling homeowners “stay” their impending foreclosures by filing bankruptcy with this specialized Federal Court.  A “stay” is a temporary halt to the foreclosure proceedings, allowing the homeowner several options: coming up with the arrearages on their mortgage, continuing negotiations on a loan modification or short-sale, or just allowing them to stay in their home for a few extra weeks or months while the bankruptcy is processed.

If citizens cannot file for bankruptcy protection, this will potentially swing greater power to the credit card and mortgage companies attempting to collect on billions of dollars of unpaid debts.  Until the federal budget is resolved, consumers will not have the shelter of the Bankruptcy Court to protect them from these creditors.

If you or someone you know has any questions about filing bankruptcy, contact a qualified bankruptcy attorney to have your questions answered.

The Orange County law firm of Don Ho, LLP can assist you with estate planning or any other legal matter.

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