Can I File for Bankruptcy After a Foreclosure in Texas?

Most foreclosure actions in Texas are done without a court procedure, utilizing a power of sale clause in the trust deed-mortgage document. The lender and trustee must follow certain legal notice requirements and procedures. The process takes many weeks, culminating in a foreclosure sale. The property owner-debtor can at least temporarily halt the foreclosure process by filing for bankruptcy.

Texas Foreclosure Process

After becoming delinquent on the mortgage payments, the lender sends a Notice to Cure to the owner-borrower. This provides 20 days to cure the delinquency by paying the late payments. If not so cured, the lender sends a Notice of Acceleration, which legally makes the full loan balance due and payable. A Notice of Foreclosure Sale then follows, which states the date and place of the sale. This notice must be given at least 21 days in advance. Before the actual sale date, the borrower can stop the foreclosure by paying the full loan balance plus costs or by filing for bankruptcy.

Bankruptcy Filing

The bankruptcy laws provide for an automatic halt, known as a stay, of all legal actions against the debtor, starting from the time of officially filing for bankruptcy protection. This rule also applies to foreclosure actions, providing the foreclosure sale has not occurred yet. The lender can ask the court for the stay to be lifted at a hearing, but cannot preclude the debtor from filing. Both Chapter 7 and Chapter 13 bankruptcy filings will enact the stay, but Chapter 13 may allow the homeowner to cancel the foreclosure and keep his home.

Chapter 13 Benefits

Chapter 13 bankruptcy allows the court to establish and impose upon creditors' payment arrangements. This includes the foreclosing mortgage lender, even though the mortgage balance was already accelerated. However, the property owner-borrower will have to make normal payments to the lender during the time of the bankruptcy proceedings and have the ability to make reasonable court-ordered payment arrangements. Often the court will ask for the lender to modify the existing mortgage so it's easier for the owner to make and maintain ongoing monthly payments.

Other Provisions

If the owner-debtor does not have the ability to make payments, he can still file for Chapter 7 bankruptcy and enact the stay on a foreclosure. Although he will not be able to keep his home, the stay should allow one to three months of delay, during which time he can find another residence and even sell the affected property. Bankruptcy protection will also preclude the lender from obtaining a deficiency judgment following a foreclosure sale against the owner-debtor. A deficiency judgment allows the lender to collect any remaining unpaid mortgage balance after applying the proceeds of the foreclosure sale.

References

• Rubin & Associates P.C.: Stop Foreclosures
• Federal Reserve Bank of Dallas: Community Development: Publications: Banking and Community Perspectives: 2007: Issue 2: Texas Foreclosure Timeline
• Rosenbaum Law Offices: Practice Areas: Automatic Stay
• Rosenbaum Law Offices: Practice Areas: Mortgages and Secured Debts