What Happens to My House When I File for Bankruptcy in Texas

Filing for bankruptcy is a significant decision that can have profound effects on your finances and assets, including your home. In Texas, the rules surrounding bankruptcy and home ownership are unique and can be complex. Understanding how your house is affected when you file for bankruptcy in Texas is crucial for making informed decisions.

Types of Bankruptcy: Chapter 7 vs. Chapter 13

In Texas, the two most common types of personal bankruptcy are Chapter 7 and Chapter 13. Chapter 7, known as liquidation bankruptcy, involves selling off non-exempt assets to pay creditors. Chapter 13, on the other hand, is a reorganization bankruptcy where you follow a repayment plan to settle debts over three to five years.

Texas Homestead Exemption

One of the key aspects that affect what happens to your house in bankruptcy is the Texas homestead exemption. This exemption allows you to protect a certain amount of equity in your primary residence. As of April 2023, in Texas, there is no limit to the value of the homestead exemption for your primary residence, as long as the property does not exceed 10 acres in a city, town, or village, or 100 acres elsewhere (200 acres for a family).

Chapter 7 Bankruptcy: Will You Lose Your Home?

Under Chapter 7 bankruptcy in Texas, if the equity in your home is less than the homestead exemption limit, you can keep your home. Since Texas offers an unlimited homestead exemption, many homeowners find that they can keep their homes despite filing for Chapter 7 bankruptcy. However, it’s crucial to continue making mortgage payments to avoid foreclosure.

If your home equity exceeds the exemption limit, the trustee may sell your home to pay off creditors. However, given the generous nature of Texas’s homestead exemption, this is a less common occurrence.

Chapter 13 Bankruptcy: How It Affects Home Ownership

In a Chapter 13 bankruptcy, you’re more likely to keep your home. This type of bankruptcy doesn’t involve selling off assets. Instead, you repay your debts through a court-approved plan. If you’re behind on your mortgage payments, Chapter 13 can help you catch up on these arrears over the life of the repayment plan, thus avoiding foreclosure.

What About Second Mortgages and HELOCs?

If you have a second mortgage or a home equity line of credit (HELOC), these can be treated differently in bankruptcy. In some cases under Chapter 13, if your home’s value is less than the amount owed on the first mortgage, the second mortgage or HELOC might be considered unsecured debt and potentially be discharged.

Important Considerations

Stay Current on Mortgage Payments: Whether you file for Chapter 7 or Chapter 13, staying current on your mortgage payments is crucial. Failing to do so can lead to foreclosure, regardless of the bankruptcy proceedings.

Consult a Bankruptcy Attorney: Bankruptcy laws are complex, and individual circumstances can vary greatly. Consulting with a Texas bankruptcy attorney can provide you with personalized advice and help you navigate the process.

Understand the Impact on Credit: Filing for bankruptcy will impact your credit score. It’s important to understand the long-term implications and work on rebuilding your credit post-bankruptcy.

Consider Alternatives: Before deciding on bankruptcy, explore alternatives like debt consolidation, loan modification, or negotiating with creditors. Sometimes, these options can provide a more favorable outcome.

Filing for bankruptcy in Texas does not automatically mean you will lose your home. The generous homestead exemption in Texas often protects your primary residence in a bankruptcy scenario. However, the specifics depend on the type of bankruptcy you file and your individual financial situation. It’s essential to stay informed, consult professionals, and carefully weigh your options when considering bankruptcy and its impact on your home ownership in Texas.

Are You Considering Bankruptcy? Get Expert Guidance Today!

If you’re facing financial challenges and considering bankruptcy as an option, it’s crucial to have an experienced and knowledgeable attorney by your side. That’s where Martin Pack comes in – a dedicated Houston Bankruptcy attorney who can help navigate the complexities of bankruptcy law in Texas.

Don’t struggle alone with overwhelming debt and the stress it brings. Call Martin Pack at (713) 980-9014 for a consultation. Get the support you need to make informed decisions and find a path to financial stability. Act now and take the first step towards a brighter financial future!