Saving Your Home Through Bankruptcy
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Saving Your Home Through Bankruptcy

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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 ...

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.

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Saving Your Home Through Bankruptcy Saving Your Home Through Bankruptcy Document Transcript

  • SAVING YOUR HOME THROUGH BANKRUPTCY ERIN B. SHANK CENTRAL TEXAS BANKRUPTCY ATTORNEY
  • 2 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
  • 3 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
  • 4 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
  • 5 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
  • 6 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.
  • 7 REFERENCES KeepMyTexasHome.org, The Foreclosure Process NOLO, Summary of Texas’ Foreclosure Laws US Courts, Bankruptcy
  • 8 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