Can I keep my house through bankruptcy? 

An overriding concern for many contemplating bankruptcy is whether they will lose their house in the process.  What happens to a house is a function of several issues, but, in general, if the equity in the house is exempt and you can keep making the payments, you can keep the house. In Texas, the equity in your home is exempt.

Secured debt survives

The bankruptcy discharge eliminates your personal liability for the mortgage, but it does not disturb the lien.  Thus, after bankruptcy,  the mortgage lender still has its rights in the property, including the right to foreclose if you breach the loan agreement.  

But, just filing bankruptcy is not a breach of the agreement;  failing to make the payments according to the loan agreement is a breach.  So, make the payments, keep the house.  

If you are behind on your payments and it makes sense to keep the house, consider Chapter 13. Chapter 13 is about saving the home.

Consumer Bankruptcy
Your Home

In Texas your homestead exemption is based upon lot size - one acre if urban. It may be of unlimited value. However, if you are behind on your mortgage payments and are subject to foreclosure, understand that a Chapter 7 Bankruptcy will only delay foreclosure. If you want to keep the home, you will have to make up the past due payments with your creditor, or ask them to "tack" the past due payments on the end of the note.  If you are current on your mortgage payments, you will have to make your payments before, during, and after the bankruptcy. 

Bankruptcy won't eliminate most liens on your home - your home is security for the loan. If you pledged your home as security for loans other than your mortgage - home equity or second mortgage - or a creditor such as the IRS has recorded a lien, those creditors , too, have claims against your home. These types of claims are called "liens." Most lien holders have a right to foreclose if the lien isn't paid off within a specified time. 

Behind on Mortgage Payments

If you are behind on your mortgage payments and looking for a solution, your first strategy should be to negotiate with the lender. Most lenders are willing to negotiate. What the lender agrees to will depend upon your credit history, the reason for your missed payments and your financial prospects. For example, you miss a few house payments because you had a car accident and couldn't work for two months. It looks like you will get back to work soon. In this case the mortgage company will most likely make a deal with you rather than move for foreclosure. Possible options with the lender include:

Spread out the repayment of the missed payments over a few months.

Reduce or suspend your regular payments for a specified time and then add a portion of your overdue amount to your regular payments later on. 

Extend the length of your loan and add the missed payments at the end.

Suspend the principal portion of your monthly payment for a while and have you pay only interest, taxes and insurance.

Refinance your loan to reduce future monthly payments.

Let you sell the property for less than you owe the lender and waive the rest. This is caled a "short sale."

If the Lender Starts to Foreclose

If your debt problems look severe or long-lasting, the lender may take steps toward foreclosure. If you are faced with foreclosure and want to keep your home, contact us immediately. 

In most cases, before foreclosure actually occurs the lender will "accelerate" the debt or "call the loan." This means that you have to pay the entire balance immediately. If you don't the lender will foreclose. Foreclosure usually takes about 90 to 120 days. During this time, you have several options:

Sell your home. Again if you do not get any offers, a short sale may be possible.

Get another lender to give you a loan that pays off all or part of the first loan and puts you on a new schedule of monthly payments. If the original lender has accelerated the loan, you will need to refinance the entire balance of the loan. If the original lender has not accelerated, then you need only finance those payments that you missed.

File for Chapter 13 Bankruptcy. Chapter 13 will allow you to cure the default - make up missed payments - and make regular payments.

If Foreclosure is Unavoidable

If you cannot negotiate your way out, or the options described above are unavoidable, the bankruptcy will often be a better deal than foreclosure. In bankruptcy, the trustee supervises the sale of your home. They will attempt to maximize the selling price. Secondly, debtors rarely recover the balance of sale proceeds in a foreclosure. In a bankruptcy, you are entitled to your cash homestead, if there are proceeds left over after the secured creditors have been paid off.