When you fall behind on your mortgage or even receive a foreclosure notice, you have options. Some homeowners successfully request a mortgage modification. Others reorganize their debt and make a plan to keep their home by filing for bankruptcy.
Learn more about how a bankruptcy can potentially provide foreclosure relief.
Protection with an automatic stay
If you file for bankruptcy, creditors can no longer attempt to collect your debt, including mortgage debt. Individuals who file Chapter 7 bankruptcy receive this reprieve, called an automatic stay, for several months while the case progresses. Individuals who file Chapter 13 will receive a stay as long as they adhere to the court-ordered debt repayment plan, which lasts three to five years.
Home equity exemption with Chapter 7 bankruptcy
Contrary to popular belief, you can keep your home in a Chapter 7 bankruptcy as long as you can afford your mortgage payments after the court discharges eligible debt. In addition, the equity in your home must fall below the homestead exemption threshold in your state.
Texas is quite generous in this regard, allowing those filing bankruptcy to keep an unlimited amount of home equity. Your homestead must consist of less than 10 acres in a suburban or urban area and less than 100 acres for individuals and 200 acres for families in a rural area.
Debt reorganization with Chapter 13 bankruptcy
With a Chapter 13 filing, you can pay off past due mortgage payments and late fees over the full term of your bankruptcy repayment plan. However, if you want to keep your home, you must demonstrate the ability to continue to pay your mortgage after debt reorganization. Doing so allows you to keep your home and avoid foreclosure. Not only that, if you have a second mortgage, the bankruptcy court may eliminate these payments as unsecured debt.
Every person’s financial situation is different. Exploring the full extent of debt relief options can help you keep your home and remove the burden of bills you cannot afford.