When a person gets to the point where bankruptcy is a possibility, many fear that they will lose the things that they hold most dear. The biggest of these worries is whether the person can stay in his or her home, especially if the home is in danger of foreclosure.
How does bankruptcy affect foreclosure, and is it possible for a property owner to keep his or her home?
Foreclosure And The Automatic Stay
One of the benefits of filing for bankruptcy is the automatic stay. In both Chapter 7 and Chapter 13 bankruptcy filings, the automatic stay is a court ordered injunction that begins as soon as the bankruptcy case has been filed.
The automatic stay essentially stops all collection actions by creditors against the debtor. Foreclosure proceedings are included in that group of collection actions that are stopped.
A creditor can ask the court to “lift” the stay, but only after having a hearing. If the court believes that the debtor will not likely be able to afford the home, it is possible that that the automatic stay could be lifted and the foreclosure action could continue.
Chapter 7 Bankruptcy Proceedings And Foreclosure
In Chapter 7 cases, the filer must identify which of their property is “exempt.” Exempt property is protected from creditors and retained by the filer.
The exemption laws are found under state law or federal law. If the debtor can use a Texas exemption, he or she will be able to keep his or her home. The State of Texas offers an unlimited homestead exemption that protects the equity the debtor has in the home, so long has it does not go over a specific acreage.
However, there is a catch. Bankruptcy can wipe out the debtor’s liability to pay outstanding unsecured debts, but this does not wipe out the obligation to pay a home. The lender still has the right to the house if the debt is not paid.
While the automatic stay can temporarily stop the foreclosure proceedings, the filer will have a very short period of time to pay any past due payments. The debtor also must continue making the regular monthly mortgage payments after the case is discharge until the entire balance owed has been paid in full.
Chapter 13 Bankruptcy Proceedings And Foreclosure
Chapter 13 bankruptcy proceedings allow the debtor to repay debts through a reorganization repayment plan. Under Chapter 13 bankruptcy, the debtor can include past due mortgage payments into this repayment plan which enables the debtor to keep the home.
The Chapter 13 repayment plan allows the debtor to pay off past due amounts a little bit at a time over several years rather than forcing a lump sum up front. If the debtor can remain current on these monthly plan and mortgage payments, he or she should be able to keep the home.
Homeowner’s Association Fees and Property Taxes
Sometimes the foreclosure action may be filed for lack of payment of homeowner’s association fees or property taxes on the home. If that is the case, the debtor would be responsible for the amount owed up to the date of filing for Chapter 13, case can be repaid over the life of the repayment plan (usually 3-5 years).
The debtor would also be responsible for paying any new taxes or new homeowners association fees that become due during the repayment period.
CONTACT AN ARLINGTON BANKRUPTCY ATTORNEY FOR A FREE CONSULTATION TODAY
An experienced Texas bankruptcy lawyer can help you apply determine the best way to stop a foreclosure, select the best exemptions to protect your property and can help address any concerns you have about the bankruptcy process.
Call the Law Office of Marilyn D. Garner NOW at 817.381.9292 for a free consultation to discuss how bankruptcy may help you.