Bankruptcy and homeownership are two concepts that many folks don't seem to think go together. But a lot of what people think about bankruptcy and homeownership is just flat out wrong.
In this blog we answer two of the biggest questions about bankruptcy and homeownership, which are "Can I lose my house in bankruptcy?" and "Can you buy a house after bankruptcy?"
We also review the difference between the Texas and Federal homestead exemption amount, how you can save your home with different types of bankruptcy, and how you can stop foreclosure with bankruptcy.
Can You File Bankruptcy and Keep Your House?
Yes, there are many scenarios where you can file bankruptcy and keep your house. In fact, most folks in Texas are able to keep their home when they file bankruptcy. Depending on your situation, you can file a Chapter 7 or Chapter 13 and still keep your home.
Keep reading below to learn more about what you need to consider if you own a home and are considering filing bankruptcy.
Can You Buy a House After Bankruptcy?
Yes, bankruptcy doesn't prevent you from buying a home. Actually, there are many folks who file bankruptcy to clear up their credit and rebalance their debt-to-income ratio so they can qualify for a home mortgage sooner. That said, there are some small waiting periods after your bankruptcy discharge that you need to be aware of.
FHA Loan | 2 years |
VA Loan | 2 years |
USDA Loan | 3 years |
Conventional Mortgage | 4 years |
Does Bankruptcy Stop Foreclosure?
Yes, Chapter 13 bankruptcy is a powerful tool that stops a foreclosure right up to the morning of the foreclosure sale. If you file Chapter 13 bankruptcy to stop foreclosure, then you'll have the opportunity to repay the amount you're behind on your mortgage as party of a payment plan for the next three to five years.
The Role of Bankruptcy Exemptions in Keeping Your Home
When folks think about bankruptcy, they often picture a scenario where you lose all of your property because of a bankruptcy filing.
But that's just not how things actually work. Instead, you get to keep all of the property that you can protect with bankruptcy exemptions.
Evaluating Your Equity and Bankruptcy Exemptions
The key thing to remember when calculating exemptions is that you only need to worry about protecting (or "exempting") the equity. The idea is that if the bankruptcy trustee were to take and sell a piece of your property--i.e. liquidate--they would have to pay off the mortgage debt to the mortgage lender first, leaving them only with the home equity to distribute to the unsecured creditors. So if you have multiple mortgages on your home then you add them all up to determine how much equity you have.
How Homestead Exemption Protects Your Home
Fortunately, our Texas bankruptcy exemptions are the envy of all the other states because of how much property they allow you to protect. You can choose to use the state exemptions if you've lived in Texas for two years (730 days) prior to filing bankruptcy, otherwise you may have to use the federal exemptions or the exemptions from the state where you lived prior to Texas.
Sometimes folks find themselves in situations where the federal exemptions are better for protecting their property than the Texas bankruptcy exemptions. Texas gives folks the choice between the Texas bankruptcy exemptions and federal bankruptcy exemptions, and choosing the federal exemptions can make sense for folks who don't have a large amount of equity in their home but have some money in savings they want to protect.
Texas | Federal | |
Homestead Exemption | If you purchased your home more than 1,215 days prior to filing bankruptcy, the Texas homestead exemption is unlimited. If you purchased your home within the 1,215 days before filing bankruptcy, then your homestead exemption is capped at $189,050. | The Federal homestead exemption is $27,900 for an individual. The Federal homestead exemption is $55,800 for spouses who co-own property. |
Chapter 7 Bankruptcy: Can You Keep Your Home?
Yes, you can keep your home if you file Chapter 7 bankruptcy and the exemptions you choose (Texas vs. Federal) have enough protection to cover all of your equity. However, the most important thing in this situation is to make sure you're current on your payments when you file your bankruptcy case.
If you're behind on your payments for any secured property when you file Chapter 7, then the creditor will file a motion for relief from stay and ask the bankruptcy court to allow them to begin taking the necessary steps to recover the collateral from your possession, meaning foreclose on your home or repossess your vehicle. Because Chapter 7 is a liquidation bankruptcy and doesn't include a repayment plan like Chapter 13, the bankruptcy court won't have any reason to deny their motion for relief from stay meaning they'll be able to resume their collection efforts and foreclose on your home.
If you're considering filing bankruptcy to save your secured property because you're behind on the payments, then Chapter 13 bankruptcy is the bankruptcy chapter you need to consider instead.
Chapter 13 Bankruptcy: A Path to Save Your Home
Chapter 13 bankruptcy is ideal for folks who have fallen behind on their mortgage loan and want to save their home. This type of bankruptcy allows you to catch up on missed payments gradually over three to five years while making monthly plan payments that are based on your disposable income. You can reorganize certain debts including mortgage arrears while repaying others, and at the end of your Chapter 13 bankruptcy any remaining unpaid unsecured debt is discharged.
How Chapter 13 Bankruptcy Stops Foreclosure
The automatic stay goes into place the moment you file bankruptcy and it prevents creditors from attempting to collect any debts from you. This is the mechanism that stops foreclosures in their tracks, as the purpose for foreclosing on your home is to sale your home to satisfy the underlying mortgage. After you file Chapter 13 and the automatic stay goes into place, you work on developing your repayment plan and getting it confirmed. You'll be able to catch up on your mortgage by making monthly payments over the course of your three to five year repayment plan instead of being forced to make larger payments to catch up sooner.
Talk to Our Bankruptcy Lawyer
Bankruptcy relief is powerful because it allows you hit reset on your finances and achieve a true fresh start. You can greatly reduce or even eliminate debt from medical bills, credit card debt, personal loans and payday loans, and working with a law firm of trusted professionals can help provide you with peace of mind as you navigate the bankruptcy code and bankruptcy law. During your free consultation with our Austin bankruptcy lawyer, we can discuss your personal property and real estate to develop a plan that allows you to protect your property and while experiencing debt relief.