Home Foreclosure & Bankruptcy Guide

Bankruptcy Can Help You Avoid Foreclosure

If you’re behind on mortgage payments or are finding it increasingly difficult to pay your monthly mortgage, filing for bankruptcy may help you avoid losing your home. Most people who struggle to pay their minimum monthly balance on credit cards, car loan installments, and mortgage payments make the mistake of waiting until they are hopelessly in debt before filing for bankruptcy.

As a result, their bank may have already started foreclosure proceedings on them. If you are struggling with mounting credit card debt and your monthly mortgage, filing for bankruptcy may be the most effective way of regaining control over your finances and avoiding foreclosure.

If, however, your bank has already threatened to foreclose on your home, filing for bankruptcy can result in an automatic stay of relief, requiring creditors and banks to halt all collection and foreclosure actions against you.

Will a Chapter 13 Bankruptcy Avoid Foreclosure?

A Chapter 13 bankruptcy will stop the foreclosure of your home and allow you to repay the back house payments over time. Filing a Chapter 13 can also eliminate or reduce credit card debt, medical bills, and other unsecured loans, which will free up money to make your house payment.

As a result, you don’t have to worry about negotiating with your bank regarding past due mortgage payments. Additionally, you should have more disposable income after your repayment plan is put into effect. Consequently, you should be able to make your monthly mortgage payment and avoid foreclosure.

What if I’m Not Yet Behind or Don’t Want to Keep My House?

If you are current or almost current on your home, and if wiping out the amount of your monthly unsecured debt payments would allow you the disposable income to be able to consistently pay your mortgage, a Chapter 7 bankruptcy may be a good solution.

Likewise, if you do not want to keep your home, but are concerned that the bank will try to collect the deficiency balance from you after they sell it or issue a 1099 (taxable income) form to you, a Chapter 7 bankruptcy can discharge this deficiency from your credit.

In order to file for Chapter 7 bankruptcy, your median household income must be below the state of Texas’s median income for homes similar in size, or you must pass the Chapter 7 means test. If you are eligible to file for Chapter 7, debt on credit cards, car loans, medical bills, and other forms of unsecured debt will be wiped clean. Once your unsecured debt is discharged, you should have more disposable income to pay your mortgage (assuming you have been paying on these debts).

Options for People Facing Foreclosure Besides Bankruptcy

If you are one of the many people facing foreclosure you should know that you are not alone. Here’s a list of three non-bankruptcy options for individuals facing foreclosure:

  1. Do nothing and let the house foreclose – If you do not want to stay in your home you can do nothing and let the bank foreclose on your home. If this is the direction you decide to go, you should make arrangements as soon as possible to find another place to live. If the bank is not able to sell your home for the amount of your loan plus their attorneys fees they can report this amount to the IRS as taxable income. For this reason, even if you think you do not want to keep your home, you should consult with a legal professional to see if bankruptcy could be an option to help you through this process.
  2. Forbearance agreement or Loan Modification – You have probably already tried working with your lender to catch up on your payments or otherwise modify your loan. In most instances, your lender will require a significant portion of the arrears (the amount you are behind) to show a “good faith” effort towards getting the loan payments back on track. What a lot of people don’t understand is that a Chapter 13 Bankruptcy can do this for you and the mortgage companies are court mandated to allow you to catch up on your payments over a period of 3-5 years (longer that most modifications or forbearance agreements allow). Additionally, you can still apply for and receive a loan modification or refinance even while you are in a Bankruptcy.
  3. Pay an unscrupulous ‘Loan Mod’ company to work with your lender on your behalf – Many desperate homeowners facing foreclosure are so scared of Bankruptcy they pay scam artists a lot of money (more than you would pay a Bankruptcy attorney) to “work with” the mortgage company on their behalf. These companies take your money, make a few phone calls and chalk you up as their next victim. Beware of any company that promises or guarantees that they can stop the foreclosure through any method other than Bankruptcy or that tells you to make your mortgage payments directly to them.

So is bankruptcy right for you? The best way to find out is to meet with an experienced legal professional like those at Leinart Law Firm. There’s no obligation and they’ll give you honest, straight answers and solutions to your financial problems.

Foreclosure Terms You Need to Know

Power of Sale Provision

This is a clause in a deed, trust, or mortgage that states that the buyer gives prior authorization for the sale of the property in order to pay the balance on the loan if they default. This means when you obtain your loan, you give permission for the lender to sell the home to help pay off what you owe if you cannot make payments. The lender can foreclose on your home without the court’s guidance or approval. Texas allows power of sale foreclosures.

Notice of Default

This is a notice that is recorded by the trustee at the county recorder’s office. The notice of default is official notice to the borrower that they are in default. If the default is not cured, by making payments, then there is a Notice of Sale filed.

MERS

The Mortgage Electronic Registration System, Inc. (MERS) is a company that tracks mortgages. This database follows mortgages as they are sold and transferred.

REO Property

Real Estate Owned property (or REO property) is when the bank owns the property due to a foreclosure. Once the bank owns the property a loan servicer will make sure that the property is secure and maintain the property and inspect it regularly.

What is the Homestead Exemption?

If you are going through bankruptcy, you may hear a lot of legal terms flying around. The homestead exemption is one of them. When you are going through Chapter 7 or Chapter 13 bankruptcy, the homestead exemption can assist you in keeping value in your home.

What Does the Homestead Exemption Do?

When you own a home and the value increases above what you owe, you gain equity in the home. The homestead exemption allows you to keep that equity. How the homestead exemption impacts your bankruptcy depends on how you are filing. There are different ways that it can impact a Chapter 7 bankruptcy from a Chapter 13. Each state has a different amount of equity that you can shield from creditors.

Homestead Exemption Domicile Requirements

To prevent people from shielding all their money by purchasing a home, the court made certain requirements that must be met to qualify. Some states require that you have lived in the house for a few years prior to filing. There are also federal caps to homestead exemptions that you should talk about with your bankruptcy attorney.

For more information about bankruptcy and foreclosure, contact Leinart Law Firm. Call 469-232-3328 to schedule your initial consultation today