Texas Bankruptcy Law and What Happens to Your Mortgage

Texas bankruptcy law offers individuals a path to manage overwhelming debt. For homeowners, understanding how bankruptcy affects a mortgage is crucial. There are two primary types of bankruptcy that individuals can file: Chapter 7 and Chapter 13. Both have distinct implications for mortgage holders.

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," involves selling off non-exempt assets to pay creditors. Typically, this doesn’t directly affect your mortgage; however, if you have significant equity in your home, it may lead to the sale of your property. In Texas, the homestead exemption allows residents to protect a substantial amount of equity from creditors—up to $50,000 for individuals and $100,000 for families. This makes Chapter 7 a viable option for many homeowners looking to eliminate unsecured debts without jeopardizing their homes.

In contrast, Chapter 13 bankruptcy is a reorganization plan that allows individuals to keep their assets while repaying debts over three to five years. This option can be particularly advantageous for homeowners struggling to catch up on mortgage payments. Under Chapter 13, homeowners can include missed payments in their repayment plan. This means that if you’ve fallen behind on your mortgage, you might have the opportunity to keep your home while gradually paying off the arrears.

It’s important to note that filing for bankruptcy does not erase your mortgage obligation. You are still responsible for repaying your mortgage debt. However, it can provide you the relief needed to manage payments more effectively during the bankruptcy process. It’s also essential to stay current on mortgage payments during this time to avoid foreclosure.

Another crucial aspect to consider is the automatic stay that goes into effect upon filing for bankruptcy. This stay prevents creditors from pursuing collection actions, including foreclosure. This can provide homeowners with a much-needed respite to assess their financial situation and develop a strategy for moving forward.

If you are considering filing for bankruptcy in Texas and are worried about your mortgage, consulting with a knowledgeable bankruptcy attorney is essential. They can guide you through the process, help you understand your rights, and ensure you make the best decisions for your financial future.

In conclusion, Texas bankruptcy law provides significant protections for homeowners facing financial difficulties. By understanding the implications of both Chapter 7 and Chapter 13, you can make informed choices that align with your financial goals. Always seek professional legal advice to navigate this complex area effectively and ensure you are protecting your home.