SAVING YOUR

HOME THROUGH

BANKRUPTCY

ERIN B. SHANK CENTRAL TEXAS BANKRUPTCY ATTORNEY

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If you wish to keep your home, filing a chapter 13 bankruptcy is likely your best option. A chapter 13 bankruptcy allows you to develop a repayment plan that will spread out your debts over a three to five year period.

Over the past several years the U.S. have faced a number of financial

difficulties, especially regarding home loans.Although it appears as though

we may finally be climbing out of the recession, the damage that has been

done to millions of hard-working Americans remains. For many, the most

immediate threat is foreclosure. Many Texans are facing the threat of

foreclosure of their home.Bankruptcy may be a solution to both the

immediate threat of home foreclosure and your overall financial problems.

WHAT IS FORECLOSURE?

Most homebuyers do not have the

cash needed to purchase a home.

Therefore, they must borrow the

majority of the funds needed for

the purchase from a bank or other

lender. This type of loan is

referred to as a mortgage loan.

The borrower agrees to make

monthly payment to the lender until the loan is repaid in full, typically over

the course of 15-30 years. When you take out a mortgage loan you also

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typically agree to use the property you plan to purchase as security for the

debt. If you default on the loan the lender has the right to take the property

used as security to satisfy the loan. The legal process by which a lender is

allowed to do this is referred to as “foreclosure”.

THE TEXAS FORECLOSURE PROCESS

In Texas, most foreclosures are non-judicial, meaning they do not require the

intervention of a court. For a borrower, this means that the foreclosure

process can be significantly shorter in Texas than it is in other states. A

borrower is technically in default on a mortgage loan when a single payment

is late. Most lenders, however, will attempt to work with a borrower who

appears to be in financial trouble before rushing to foreclose on the loan. If

the lender does decide to proceed with foreclosure, the steps required are as

follows in most foreclosures:

1. Notice of Default. The lender is required to provide notice of the

default, in writing, to the borrower and provide the borrower with 20

days within which to “cure” the default. “Cure”, in this context, is simply

a legal word for “fix” or “correct”. If the borrower fails to cure the

default, or otherwise halt the foreclosure proceedings, the lender may

proceed with the foreclosure.

2. Notice of Sale. At least 21 days must pass after the initial 20 day sure

period before a foreclosure sale may be scheduled. The lender is

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required to notify the borrower in writing as well as post the notice at

the county courthouse and file it with the county clerk. All sheriff sales

are held on the first Tuesday of the month in Texas.

3. Foreclosure Sale. The property is auctioned off to the highest bidder

at auction on the day of sale.

Unlike some other states, Texas does not have a right of redemption,

meaning that the borrower does not have a “redemption” period during

which he or she may still pay off the loan and redeem the property after the

sale.

Another important point for a borrower to understand about a foreclosure

sale is that the borrower

often still owes the lender

money even after the sale.

Known as a “deficiency

judgment”, a borrower may

still be indebted to the lender

if the amount paid for the

property at sale was not

enough to cover what the borrower owed the lender at the time of sale. For

example, if you owed $150,000 to your lender and your home sold at auction

for $120,000 you could still be indebted to the lender for $30,000. For this

reason alone, even if you are not interested in remaining in your home you

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should still consult with a bankruptcy attorney if you are served with a

foreclosure notice.

HOW CAN BANKRUPTCY HELP?

If you have been threatened with foreclosure, or served with a notice of

foreclosure, bankruptcy may be able to help in a number of ways. First, when

you file a petition for bankruptcy the court will issue an automatic stay. The

automatic stay is a court order prohibiting all creditors from initiating, or

continuing, any attempts to collect on a debt, including foreclosure. This

provides you with an immediate relief from the foreclosure process and

allows you time to work with your attorney to find a permanent solution.

If you wish to keep your home, filing a chapter 13 bankruptcy is likely your

best option. A chapter 13 bankruptcy allows you to develop a repayment plan

that will spread out your debts over a three to five year period. Provided that

you adhere to the plan you will be able to remain in your home. Moreover, at

the end of the repayment plan period, any debts that remain unpaid will

usually be discharged, or eliminated. The end result is that you can save your

home, pay off the majority of your debts, and start over with a clean slate

once the bankruptcy is concluded.

Even if you do not wish to remain in your home bankruptcy may still be able

to help. As mentioned previously, simply letting the lender proceed with the

foreclosure process isn’t always the end of the problem. If a deficiency

judgment is entered against you after the sale of the home you could end up

without a home and still owing for the home. In this case a chapter 7

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bankruptcy may be your best option. A chapter 7 bankruptcy is a much

simpler process, typically concluded in less than six months. At the end of a

chapter 7 bankruptcy, most debts are discharged, meaning you no longer

owe them. If you have additional debts, such as medical bills or credit card

debts, you may be able to include them in the bankruptcy as well.

LIFE AFTER BANKRUPTCY

Borrowers frequently hesitate to consider bankruptcy as a solution when

faced with the threat of foreclosure because they are convinced they will

never qualify for financing again if they go through bankruptcy. Although

each situation is unique, the general rule is that a debtor may qualify for an

FHA or VA loan two years after discharge of a chapter 7 bankruptcy. In a

chapter 13 bankruptcy, a debtor may even qualify during the repayment

period with court approval. Obtaining conventional financing after

bankruptcy will typically require a debtor to wait longer than for an FHA or VA

loan; however, even conventional financing can be secured if you are willing

to wait about four years after a chapter 7 discharge and two years after a

chapter 13 discharge.

For a homeowner who has worked long and hard to be able to afford a home,

the threat of foreclosure can be terrifying. If you find yourself in this position

consult with an experienced Texas bankruptcy attorney immediately to

discuss how bankruptcy can help you.

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REFERENCES

KeepMyTexasHome.org, The Foreclosure Process

NOLO, Summary of Texas’ Foreclosure Laws

US Courts, Bankruptcy

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About the Author

Erin B. Shank With extensive training and years

of experience helping families

throughout Central Texas, Erin B.

Shank is here to help you conquer

your financial obstacles. Whether

you need guidance and advice

regarding bankruptcy, debt

consolidation, tax debt or other

financial problems, our friendly and

qualified team can help you find

solutions that will enable you to

manage or eliminate your debt.

Erin B Shank, PC

www.centraltexasbankruptcy.com

1902 Austin Avenue Waco, TX 76701 (254) 296-1161 1711 East Central Texas Expressway Suite 107 Killeen, TX 76541 (254) 690-4110