The Foreclosure and Chapter 7 Bankruptcy Question: What to Know

May 3, 2012 - PRLog -- Many of those who seek to file Chapter 7 bankruptcy in Texas may also be facing foreclosure action on their home. While a bankruptcy cannot guarantee you can keep your home after the process is finalized, it may buy you time to help you plan for your future.

Upon starting the bankruptcy process you will be granted what is known as an “automatic stay” for Chapter 7 cases. This means that creditors cannot contact you regarding your debts or make any attempts to collect things such as repossession or wage garnishment.

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During this time period you won’t have to worry about mortgage payments but you will have to worry about what you will do once the bankruptcy is over and you cannot keep your home.

There are many factors that go into determining the fate of your home after a Chapter 7 bankruptcy is granted. While Chapter 7 can get rid of many debts such as credit card balances, it will not pay off your mortgage and let you keep your house free and clear.

The ability to keep your home after a bankruptcy depends on the documents you signed when you bought your property.

In nearly every home sale the owner signs both a promissory note and a security agreement. The security agreement can be recorded as a lien that enforces your agreement to abide by the payments of the promissory note. A bankruptcy can get rid of your liability through the promissory note, but it cannot remove the lien, meaning you will have to give up the home.

Some Debts Are Removed with Chapter 7 Bankruptcy

The mortgage on your home is 1 of the debts that can be discharged in most Chapter 7 bankruptcy cases. Second mortgages and home equity loans may also be relieved through the bankruptcy process in some circumstances. However, if you are in a foreclosure action, removal of these debts does not grant you ownership of the home.

Aside from home debts, you can also have some of your tax liability canceled for certain property loans. If you would normally be liable for taxes on losses a mortgage or home improvement lender incur because of your default, a bankruptcy would exempt you from that debt.

The 2 exceptions to this rule are when the loan is not a mortgage or used for home-related improvements or when the loan was secured by property that is not considered your primary residence.

The Ultimate Fate of Your Home with Foreclosure under Chapter 7

In most cases of bankruptcy when your home is also in foreclosure you will still end up losing your property. The Chapter 7 automatic stay gives you some relief from harassment about missed mortgage payments so you can devote your time to restarting your financial life after the bankruptcy process is over.

Many homeowners facing foreclosure turn to bankruptcy first without considering all of their options. Chapter 7 bankruptcy may not always be the best or even a viable option for your situation. Before making these sort of life-impacting decisions it’s best to discuss your case with a professional such as a bankruptcy attorney.

Are you facing foreclosure AND Chapter 7 bankruptcy? We can help!

At Warren & Migliaccio, L.L.P. our Dallas bankruptcy attorneys want to help you make the best financial decisions for your situation. We’ve helped clients file Chapter 7 and Chapter 13 bankruptcy and work toward rebuilding a new credit history. We also provide guidance for homeowners facing foreclosure, and debtors being harassed by collection agencies.

We offer a FREE no cost consultation to discuss your reasons for filing bankruptcy. With the help of our attorneys you can make informed decisions about your financial future and work on getting your life back on track. Call us at 1-888-584-9614 or contact us online to schedule an appointment today.