Foreclosure proceedings may be instituted in the State of Texas when the mortgagee, or homeowner, falls behind on mortgage payments to the mortgagor, or lender. Mortgagors will usually wait several payments before instituting a foreclosure action, but there is no guarantee that they will hold off.
If you think you can no longer pay for your home, it is a wise time to invest in the services of foreclosure and bankruptcy attorney in Houston.
Many purchase and sale agreements on homes include a clause that allows the mortgagor to bring a foreclosure lawsuit as a matter of right. Foreclosure actions are essentially breach-of-contract lawsuits– where one party, the homeowner, fails to perform its obligations to pay monthly payments to the other party, the lender, in exchange for an increasing ownership stake in the asset, the home. Because foreclosure actions are this type of lawsuit, they occur in Texas State Court.
Bankruptcy, however, is a federally-designed protection that “stays” debt collection activities and state court lawsuits, due to the federal government’s preemptive power. This means that when you file for bankruptcy, the United States Bankruptcy Court will issue an “automatic stay.” This is a legally-enforceable court order that requires creditors to stop trying to collect debts and includes a requirement that a mortgagor cease foreclosure activities.
Understanding how to stop foreclosure in Texas is something we discuss in detail in the proceeding paragraphs.
Can Bankruptcy Stop Foreclosure in Texas?
Does bankruptcy stop foreclosure on your Texas home? Yes. Using bankruptcy to stop foreclosure by filing for either Chapter 7 “liquidation” or Chapter 13 “reorganization” bankruptcy can provide temporary relief. Whether or not you will get to keep your home depends on a number of factors.
When you file for bankruptcy, the court automatically issues an order (called the order for relief) that includes an automatic stay. The automatic stay directs your creditors to cease their collection activities immediately.
Using Bankruptcy to Avoid Foreclosure Temporarily
Will bankruptcy stop foreclosure? Yes. Whether you file for bankruptcy under Chapter 7 or Chapter 13, a court order called the automatic stay goes into effect as soon as you file your paperwork. The stay stops all collection actions against you, including foreclosure proceedings like the state court entering any orders regarding foreclosure and permitting the foreclosure sale of your home to move ahead.
However, creditors can file a motion to “lift” the stay, which allows them to bypass the stay and proceed.
Motion to Lift Stay
The lender can file a motion with the Bankruptcy Court to lift the stay, which asks permission to continue with the foreclosure sale. If this is granted, you may not receive the extra three to four months of time bankruptcy would ordinarily provide you. However, as with any motion, you will have an opportunity to oppose the papers the lender files (your attorney should help you determine if there is a legal or an equitable basis for doing so), and it takes time for the motion to be filed and heard.
Thankfully for many borrowers, the amount of time for courts to hear and decide on all motions has been extended recently due to the global COVID-19 pandemic, which has slowed court proceedings and also led to state and local protections against any actions that could result in the eviction of Texans from their homes.
Filing of Foreclosure Notice Before Bankruptcy
Texas laws require lenders to give homeowners ninety (90) days’ advance notice before selling off their property. See Texas Property Code §51.0001.
Unfortunately, the Bankruptcy Court’s automatic stay does not stop the clock once this advance notice has been provided. In other words, if a Texas property owner receives the three-month required notice, and then files for bankruptcy a month later, a foreclosure sale will be on the horizon within two months of the bankruptcy filing.
Can You Stop Foreclosure with Chapter 7?
Can you stop foreclosure with Chapter 7? Yes. In a Chapter 7 Bankruptcy, while the automatic stay is in effect, a court-appointed trustee reviews all debts, income, and assets of the filer. The trustee can take any property you own that isn’t protected by an exemption.
As long as you invoke the Texas exemptions, however, your home won’t be at risk. Texas provides a homestead exemption that is unlimited for a residence that does not exceed ten (10) acres in a town, city or village or one-hundred (100) acres in the country (and 200 acres for families). See Texas Property Code §§41.001-41.002.
If you are considering bankruptcy to avoid foreclosure, bankruptcy will wipe out your personal liability to repay the debt. However, the lender still has the right to take back the house. If you want to keep your house, you will have to come up with the money you owe and get current going forward.
Chapter 7 can help postpone foreclosure for at least a few months. There is a strategy to consider here, in terms of prioritizing what you want to hold onto when you build back better after bankruptcy, and an attorney experienced in these areas can help you make a solid plan. For example, because bankruptcy will likely discharge many of your debts, including most of your unsecured debts, bankruptcy may help you free up more money to pay your mortgage. In that case, you may be able to negotiate with the lender, get back on track with a payment plan, and stay in your house.
Will Chapter 13 Bankruptcy Stop Foreclosure?
Using Chapter 13 bankruptcy to stop foreclosure may be an even better choice than Chapter 7 for keeping your home in a Texas bankruptcy. This is because under Chapter 13, which is a form of financial reorganization, you can roll your missed payments into your repayment plan. That way, you can pay the payments off a little bit at a time over several years, rather than having to come up with the whole amount in arrears all at once.
Thus, if you’re asking – ‘Can I file for bankruptcy and keep my house?’ – your property may be protected. As long as you complete your Chapter 13 plan and stay current on your monthly payments going forward, you can keep your home.
Many homeowners ask, “Will Chapter 13 save my house from foreclosure?” For most homeowners who want to keep their homes but need the bankruptcy option, filing Chapter 13 to stop foreclosure is a good choice. Chapter 13 Bankruptcy may stop or delay home foreclosure. In a Chapter 13 bankruptcy, you can pay off the late payments over the length of the repayment plan, as long as you continue to meet your current mortgage payments as well. If you make timely payments under your Chapter 13 debt repayment plan, you can avoid foreclosure.
Sometimes the reason homeowners are late on mortgage payments is that they have multiple mortgages and have become “underwater” in mortgage obligations. For these homeowners, the value of their houses may have dropped due to changes in income or economic crises beyond their control, and their second or third mortgages are no longer fully secured by the value of the house.
If there is not enough equity to secure one or more of these “junior mortgages,” you can use something called “lien stripping” to save your home. This means that you can ask the Chapter 13 Bankruptcy Court to strip the junior mortgages that are not secured and re-categorize them as unsecured debt. Unsecured debts are the lowest priority debts in bankruptcy and may be completely discharged in bankruptcy.
How Long Will Chapter 13 Delay Foreclosure?
Since Chapter 13 Bankruptcy involves structured repayments of debts, and a filer will continue making payments under a Chapter 13 plan, Chapter 13 has the potential to delay your foreclosure indefinitely. Most unsecured debts in a Chapter 13 reorganization plan are paid or partially discharged in 3-5 years, though payments on a mortgage will likely continue for the agreed upon term between the homeowner and the lender.
The Law Offices of Seth Kretzer Can Represent Your Interests Through Bankruptcy in Houston
When you are trying to figure out how to avoid or manage foreclosure issues during bankruptcy, you will need a lawyer with specific experience on bankruptcy in Texas and who has the right knowledge and resources to help you.
Contact The Law Offices of Seth Kretzer today to schedule a free consultation so that we may discuss your case.