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How a Texas Bankruptcy May Help Stop a Home Foreclosure

January 11th, 2019 at 11:35 pm

Texas bankruptcy lawyerIf you own a home, you are one of the millions of Americans who are lucky enough to have achieved the American Dream. The scary part is, you can have that dream taken away from you if you fall on hard times. Foreclosure is a very real thing that happens to households every day. Fortunately, you have a few options that you can choose from if you find it difficult to make payments on your home. The options available to you will depend on whether your financial distress is temporary or more permanent. If you are just temporarily having issues paying your mortgage, you can look at options such as a renegotiated repayment plan or forbearance. If your financial distress is more permanent, you can consider bankruptcy as an option to help you.

Automatic Stays and Bankruptcies

When you file for bankruptcy, all creditors, collection agencies, government entities and other people you may owe money to must cease to contact you about your debts. This is what is called an “automatic stay” and it can prevent the bank from taking action against you if you have an outstanding balance on your mortgage. The automatic stay begins the moment you file the paperwork for bankruptcy and prevents the bank from trying to start the foreclosure process on your home or if the process has already been started, the automatic stay prevents the process from moving any further. The length of the automatic stay depends on the type of bankruptcy you choose to file but lasts as long as the bankruptcy lasts.

Different Bankruptcies Produce Different Results

Chapter 7: This type of bankruptcy is one in which all of your debts are eventually forgiven, though it should only be used as a last resort. A Chapter 7 bankruptcy almost always results in a liquidation of your assets, meaning you will probably end up losing your home. If you do not see a way that you will be able to pay off your mortgage in the future, this may be your only option.

Chapter 13: This is the more permanent solution to help you save your home. A Chapter 13 bankruptcy will result in a repayment plan for all of your debts, including your mortgage. The repayment plan will allow you to spread out the past-due amount on your mortgage over three to five years. After the repayment plan is finished, you will be caught up on your mortgage, granted you must still pay your normal monthly mortgage payment.

A New Braunfels Bankruptcy Attorney Can Help You Fight to Keep Your Home

The thought that your home could be taken from you is a very scary one. If you are behind on your mortgage and you think a foreclosure could be on its way or you are already in the foreclosure process, you should seriously consider filing for bankruptcy as an option to help you keep your home. At the Law Offices of Chance M. McGhee, we understand how emotional it can be to even think about losing your home. Our experienced Schertz bankruptcy lawyers can help you determine if bankruptcy is a viable option for you and what kind of bankruptcy you should file. Call the office today at 210-342-3400 to schedule a free consultation.

 

Sources:

https://www.investopedia.com/terms/a/automaticstay.asp

https://money.cnn.com/2010/07/21/real_estate/bankruptcy_and_foreclosure/index.htm

Posted in Home Foreclosures

Buy Time for Your Home with Chapter 7

October 13th, 2017 at 7:00 am

Filing a Chapter 7 bankruptcy case stops a foreclosure and buys some time to either arrange to keep the home or move in a peaceful way.  

 

Chapter 7 “Straight Bankruptcy” vs. Chapter 13 “Adjustment of Debts”

Speaking very generally, Chapter 7 buys you some time with your home while Chapter 13 buys you much more time.

So the questions are: how much more time to do you need and will Chapter 7 buy you enough?

How Chapter 7 Helps

As to your home, your filing of a Chapter 7 case:

1. Stops a pending foreclosure sale of your home, at least temporarily, through the “automatic stay.” Your bankruptcy filing stops “any act to… enforce any lien against property of the estate.” “Property of the estate” includes essentially everything you own at the time of filing, including your home. See Section 362(a)(4) and (5) and of the U.S. Bankruptcy Code. How much time Chapter 7 buys depends on your situation, as we’ll get into a bit below.

2. It also at least temporarily stops not just foreclosures by your mortgage company, but also by other lienholders. This includes foreclosures for unpaid property taxes, homeowner assessments, or judgment lien creditors. In the case of judgment liens, Chapter 7 may also get rid of them, and the debt underlying it.

3. Prevents, at least for a few months, most kinds of new liens from attaching to your home. So an income tax debt does not turn into a tax lien. A pending lawsuit does not turn into a judgment lien against your home. This is particularly helpful if that tax is old enough to qualify for discharge (legal write-off). And most likely the debt underlying the lawsuit can be discharged. In these situations Chapter 7 protects your home from those debts and anticipated liens.  

Situations When Chapter 7 May Be Enough

Here are some of the main situations when it’s worth filing a Chapter 7 case for your home.

A Scheduled Mortgage Foreclosure

You already have a scheduled foreclosure date, and it’s coming very soon. Your Chapter 7 filing will very likely cancel it. The “automatic stay” protection lasts throughout the 3-4 months that your case is open. So your mortgage lender can restart the foreclosure after that. But the delay may be much shorter if your lender asks the bankruptcy court for permission to restart the foreclosure while your Chapter 7 case is still open. So it depends on the aggressiveness of your lender. Filing under Chapter 7 may buy you an extra few weeks or an extra few months.

  • If you are selling your home and are close to selling it, those extra weeks or months may be all you need to finish the sale and pay off the mortgage.  This only works if the net sale proceeds—your money from the sale—are fully covered by your homestead exemption. Then you keep those proceeds. Otherwise the Chapter 7 trustee would have a right to any proceeds in excess of the homestead exemption.
  • You’re surrendering your home but need to buy more time to gather funds for moving and rental expenses. Your lender might possibly even pay you to move faster (to save itself foreclosure expenses).

 An Anticipated Mortgage Foreclosure

A foreclosure sale date has not yet been scheduled but you think it’ll happen soon. Your Chapter 7 filing will postpone it. As stated above, your mortgage lender can ask the court for permission to proceed with the foreclosure. So how much time your bankruptcy filing buys depends on your lender.

A Debt Expected to Turn Into a Lien

You’re not concerned about a mortgage foreclosure, but rather about a debt turning into a lien on your home. As discussed above, if this is a debt that would be discharged in bankruptcy, Chapter 7 can be hugely helpful. Your Chapter 7 filing stops the placing of the lien, discharges the debt forever, and thus avoids the lien forever.

Even if the underlying debt cannot be discharged—such as a relatively recent income tax debt—your Chapter 7 filing stops the lien at least temporarily. Your bankruptcy case then discharges most or all of your other debts. At that point you can focus your financial efforts on paying the tax. Entering into a formal payment plan may prevent a tax lien from being recorded.

Summary

A Chapter 7 case filed through your bankruptcy lawyer may give you less power than a Chapter 13. It usually only buys you a relatively short amount of time. But the limited power and time it does give may be enough in your particular situation. And it may enable you to discharge a debt, preventing that debt from resulting in a lien on your home.

 

An Example of Surrendering Your Home Later in a Chapter 13 Case

August 26th, 2016 at 7:00 am

Here’s an example of how Chapter 13 can allow you to hold onto your home but then change your mind about it later. 

 

Our last blog post introduced the option of saving your home through Chapter 13, while keeping open the possibility of surrendering the home later if your circumstances change. 

Advantage of Keeping Your Options Open

Sometimes it’s hard to know whether hanging onto your home is worth the money and effort. For example, if you were about $10,000 behind on your mortgage and property taxes, and could get that money by borrowing from a relative or from a retirement account, would that be worthwhile? What if the home had no equity—the mortgage loan balance was higher than the value of the home? What if you were not confident you could afford to pay back that $10,000 loan? What if the main current reason to stay in the home now would no longer apply in a couple years?  

If you filed a Chapter 7 “straight bankruptcy” case you would have to make that decision quite quickly. If your mortgage lender was in the process of foreclosing your home, or was threatening to do so, a Chapter 7 filing protects your home for only about 3 months, sometimes less. You effectively have about that much time to decide whether to keep your home, and to figure out how.

And what if you don’t have any means to come up with that $10,000—no rich relative or retirement account?  What if you simply don’t have the means, even after reducing your debts as much as possible through Chapter 7, to catch up on the mortgage as fast as the mortgage lender demands?

Chapter 13 Solution

Not only does Chapter 13 give you some remarkable tools for saving your home. It often also gives you the option of later changing your mind and surrendering the home.  We’ll illustrate this in a practical way within the fact scenario presented in our last blog post. Please look at that scenario before reading further here.

Our Scenario

Going back to the hypothetical facts presented last time, you and your spouse decide to file a Chapter 13 case.  You really want to hang onto your home. Your attorney has advised you that filing a Chapter 7 case would not get you there.

It’s especially important for you and your family to be able to stay in your home for the next 3 years. That’s because you have two kids very involved in their local public high school, and absolutely want them to be able to finish there.  

You and your spouse would love to keep your home forever. But if necessary you’re willing to lose it three years from now after both kids have graduated. So you’re willing to take some risks to get there. So, even though you’re not confident that you’ll be able to keep your job, and even though you have concerns about possible upcoming medical expenses for your spouse, you are both willing to work hard and take some risks to try to keep the home for at least these upcoming 3 years.

Chapter 13 Plan

So after being fully informed by your bankruptcy lawyer, you and your spouse file a Chapter 13 case.  The following good things happen:

·         Your Chapter 13 payment plan provides that you slowly begin paying the $6,000 you’re behind on your first mortgage, with $100 monthly payments stretched out over the 5 years of your projected case. That’s much less than virtually any mortgage lender would otherwise allow. The relatively low monthly amount makes catching up easier and so more likely to be ultimately successful.  Also, it minimizes your investment in the home each month if you do end up changing your mind later.   
·         Your Chapter 13 plan similarly stretches out catch-up payments towards the $2,000 in home property tax arrearage, with payments of $50 per month. The benefits above apply here as well.
·         Your $20,000 second mortgage is “stripped” off your home’s title, because there’s no home equity securing it. You no longer have to make the monthly payments, nor ever have to catch up on the accumulated late payments. Plus with that mortgage lien off your title, you’re that much closer to building equity in your home. (Second mortgage “stripping” is only available under Chapter 13, not under Chapter 7.)
·         Your court-approved Chapter 13 plan “avoids”—removes—a $10,000 judgment lien that a creditor recently recorded against your home’s title, arising from an unpaid hospital bill. This judgment lien “avoidance” procedure can also be done under Chapter 7 in the right circumstances. But it’s all the more powerful when done in conjunction other features available only under Chapter 13.
·         The $20,000 second mortgage balance and the $10,000 judgment debt are both now treated as “general unsecured” debts. These are added to the $50,000 in other medical debts and credit card balances. So your unsecured debts now total $80,000.

What Happens to the “General Unsecured” Debts

Through your Chapter 13 plan you pay only as much of this $80,000 in unsecured debts as your budget allows. Usually, if all you can afford to do during your time in Chapter 13 is catch up on the first mortgage and property taxes (and pay the trustee’s fee and any remaining attorney fees), you would pay nothing on that $80,000.

Even when you do pay some portion of it, because your plan pays the secured debts first, the unsecured debts often receive little or nothing in the first couple years of your case. This, too, minimizes how much you pay during the early years of your case. That’s beneficial if you decide to surrender the home later.

Two Possible Endings to Our Scenario

As the Chapter 13 case plays out in this scenario, you and your spouse either succeed in making the plan payments over the months and years, or don’t. You either keep your job, or bring in a similar amount of income from another job, or you don’t. Your spouse either avoids needing a lot more medical care and piling on a lot more expenses, or doesn’t. 

If you succeed in paying as your Chapter 13 plan envisioned, you can hold onto your home permanently. By the completion of your case you will have caught up on your first mortgage and the property taxes. The second mortgage and judgment liens will have been removed from the title to your home. And whatever you haven’t paid of the remaining unsecured debts will be discharged. You will be current on your home obligations and be otherwise debt-free.

But if your income decreases or your expenses increase so that you are not able to maintain your Chapter 13 plan payments throughout the entire 5-year course of your case, at that point you could decide to surrender your home. Depending on the circumstances you may then decide to amend your payment plan to exclude the home obligations. Or more likely you would convert your case into a Chapter 7 one, discharging all your debts so that you would be debt-free within a few months of that. In the meantime, you had succeeded in holding onto your home long enough to keep one, and hopefully both, of your kids in their school through graduation.

You would have benefitted from this flexibility provided only by Chapter 13.

 

The Option of Surrendering Your Home Later in a Chapter 13 Case

August 24th, 2016 at 7:00 am

As you decide whether to use the powerful tools of Chapter 13 to hold onto your home, it helps to know that you can later change your mind.  

 

Our last blog post was about surrendering your vehicle in a Chapter 13 “adjustment of debts” case.  One major advantage we discussed is being able to change your initial decision about keeping your vehicle if circumstances change.

This can be even more beneficial when dealing with a home because of the much greater amount of money involved. When you’re considering whether to use the tools of Chapter 13 to save your home, it is important to know what would happen if circumstances changed a couple years later and you decided to let go of the home.

Some of the Home-Saving Tools of Chapter 13

Here are just a few of the potential benefits of Chapter 13 “adjustment of debts” if your goal is to keep a home on which you’re behind:

·         You usually get the whole length of your 3-to-5-year Chapter 13 payment plan to catch up on late mortgage payments.
·         You are given the same length of time to catch up on any late property tax payments.
·         Judgment liens on the home can often be “avoided”—gotten rid of.
·         Second mortgages can sometimes be “stripped” off your home’s title.

An Example of These Tools at Work

Imagine that you and your spouse own a home currently worth $215,000. Its first mortgage balance is $225,000 and the second mortgage balance is $20,000. Their monthly payments are $1,000 and $300, respectively. Because of losing your job a year ago you’re 6 months late on both mortgages, $6,000 and $1,800 behind, respectively. Plus you haven’t paid last year’s property tax bill of $2,000.

Six months ago you and your spouse were sued by a collection company on n unpaid hospital bill. A year earlier your spouse had emergency appendix removal surgery, and there were complications, aggravating a prior condition.  The unpaid balance is for the portion not paid by insurance. You didn’t respond to the collection lawsuit, and judgment for $10,000 was entered against the two of you. You’ve heard that there is now a judgment lien in the amount of $10,000 against your home.

You also owe $50,000 in other medical bills plus credit cards, all past due. Some of these creditors have threatened to sue you.

You have two kids who attend and are very active at their local public high school. If you had to leave your home you would not be able to afford another home within the school district. Your kids would have to change schools, something you and your spouse absolutely want to prevent.

A couple months ago you finally got a new job at the local plant of a large nationwide corporation. The position looks to be reliable, although you’ve heard rumors that the plant may close in a year or two. Also, the medical insurance coverage provided is not great. Since your spouse’s health situation continues to be tenuous, the high deductibles and co-pays leave you feeling financially exposed.

Your Legal Options

You and your spouse meet with a bankruptcy lawyer to find out your legal options. The lawyer tells you that a Chapter 7 “straight bankruptcy” filing would:

·         very likely “discharge”—legally and permanently write off—the $10,000 lawsuit debt
·         remove the judgment lien from your home’s title
·         discharge the $50,000 in other medical debts and credit cards
·         not directly affect the two mortgages or the property taxes on your home

Your lawyer carefully reviews your after-Chapter 7 budget and advises you that, under present circumstances, the two of you do not have enough disposable income to catch up on your first and second mortgage and your property taxes. So if you filed a Chapter 7 case you would have to surrender your home to your mortgage lenders. You’d have to do so within a few months.

However, you would not have to pay the mortgage payments in the meantime. So you could save money for future rent after you leave. And you’d never have to catch up on either mortgages, or on the property taxes. That alone would save you $6,000, $1,800, and $2,000, respectively, a total of $9,800.

The Chapter 13 Option

Your lawyer also informs you that if instead you wanted to keep your home, you could do so through a 5-year Chapter 13 payment plan. But that assumes your present income and expenses would remain steady. But you have genuine concerns as to the reliability of your job and the ambiguities of your spouse’s health.

So your lawyer also explained that Chapter 13 gives you the additional benefit of being able to keep your home for a few years and then surrender it only if your circumstances changes—such as if your income went down or your expenses went up—or if keeping your home because less important—such as after your kids graduate from the local high school.

See our next blog post to learn how this delayed home surrender works.

 

Making Sense of Bankruptcy: Protecting Your Home from Foreclosure with the “Automatic Stay”

August 21st, 2015 at 7:00 am

Either Chapter 7 or 13 will stop a foreclosure, even if your lender unintentionally or purposely proceeds with the foreclosure sale.

 

Here’s a one-sentence summary of today’s blog post:

Bankruptcy’s “automatic stay” will stop a foreclosure, forcing your mortgage lender’s cooperation, but in the rare event your lender unintentionally or purposely proceeds with the foreclosure sale it will be ineffective and your home will still be yours, whether you file a Chapter 7 or Chapter 13 case.

The “Automatic Stay” Prevents a Home Foreclosure

In our last blog post a couple of days ago we described the “automatic stay” as the immediate stopping of virtually all collection actions of your creditors. Especially if you are racing to stop a foreclosure, this powerful tool is one of the most important benefits of filing bankruptcy.

The automatic stay definitely applies to home foreclosures. Your mortgage lender has a lien against your home. A foreclosure is an attempt to enforce its lien against your home. The Bankruptcy Code says that a bankruptcy “petition filed… operates as a stay, applicable to all entities, of…  any act to… enforce [any lien] against any property of the debtor…  .” See Section 362(a)(4). This means that the mere filing of your bankruptcy case will immediately stop a foreclosure from happening.

So How Could a Foreclosure Sale Still Happen After a Bankruptcy Filing?

After your bankruptcy is filed your lender can file a motion in the bankruptcy court asking for permission to proceed with a future-scheduled foreclosure sale. Or to re-start one that was stopped by your bankruptcy filing. If you want to keep your home such motions for “relief from the automatic sale” can often be defeated. But that’s a different subject from what we’re talking about here.

Instead, what if your bankruptcy case is filed just hours or even minutes before the foreclosure sale and the foreclosing mortgage lender or its attorney can’t be contacted in time for them to be told about the bankruptcy filing? Or what the lender is contacted in time but somehow doesn’t tell its attorney in time so that the foreclosure sale mistakenly still happens? Or what if the lender refuses to comply with the automatic stay and deliberately forecloses anyway?

As long as the bankruptcy is in fact filed at the bankruptcy court before the foreclosure sale takes place, the foreclosure would not be legal. By law it would have to be undone. It does not matter whether such a foreclosure would happen mistakenly or intentionally.

Unintentional Foreclosure Sale

If a foreclosure happens after a bankruptcy is filed because the lender or its attorney didn’t find out in time, or simply messed up for any reason, almost always the lender will act very quickly to undo the foreclosure sale.

If the foreclosure occurred because of its error, the lender will know it acted illegally and that not rectifying the situation right away only aggravates its illegality. So in this situation lenders are virtually always very cooperative in quickly undoing the effect of the foreclosure.

This happens even if the foreclosure happened right after a bankruptcy filing not through lender error, but because there simply wasn’t enough time to inform it about the bankruptcy filing. It is easy to prove that the bankruptcy was filed and that the automatic stay was imposed before the foreclosure sale occurred. And that usually quickly resolves the issue, with the lender rescinding the foreclosure sale.

Either way, if a lender fails to undo a foreclosure sale after being presented with evidence that the bankruptcy was filed first, it would be in ongoing violation of the automatic stay. Since this would make a lender liable for significant increasing financial penalties, they usually cooperate right away.

Intentional Foreclosure Sale

Mortgage lenders or their attorneys virtually never go ahead with a foreclosure if they know that a bankruptcy by the homeowner has been filed. At the least they first file a motion for relief from the automatic stay, which you and your attorney would have the opportunity to oppose and can often defeat.

But in the highly unusual event that a lender would not file a motion but just proceed with a foreclosure in defiance of your bankruptcy filing, the law entitles you to “recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, may recover punitive damages.” See Section 362(k). Bankruptcy judges have no patience with mortgage lenders who purposely violate the law.

Chapter 7 vs. Chapter 13

For purposes of stopping a foreclosure that is about to happen, it does not matter whether you file a Chapter 7 or Chapter 13 case. The automatic stay is the same under both—imposed just as quickly either way.

What’s different usually is how long the protection of the automatic stay lasts. When you file a Chapter 7 “straight bankruptcy” the case lasts only about 3 or 4 months, and the automatic stay ends as soon as the case does. It can end sooner if a creditor files a motion for “relief.”

A Chapter 13 “adjustment of debts” is a payment plan that usually takes 3 to 5 years, and the automatic stay lasts that long. Again, this assumes that your mortgage lender doesn’t ask for and get “relief from stay.”

More importantly, although either Chapter 7 or 13 will give you the same immediate protection from foreclosure, each option gives you very different tools for dealing with your mortgage debt. That’s why your mortgage lender will likely react differently depending on which Chapter you file under and how you propose to deal with the mortgage within each.

The tools these two options give you is the topic of our next blog post.

 

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