Credit card debt has a way of getting out of control.  Small balances can quickly become financial burdens when a missed or late payment results in late fees and an increase in the interest rate.  One strategy for dealing with this type of problem is to refinance the debt.  If you find yourself in this situation, and are looking at ways to pay off your credit card bills, do yourself a favor and keep your eyes averted from your home and your car.

It might be tempting to apply for a loan using your home or car as security.  You will generally get a lower interest rate by providing security to the lender than you would with an unsecured loan.  However, by giving the lender a security interest in your house or car you are giving them the right to take your property if you default on the loan.  Before you use your house or vehicle as collateral, step back and take a hard look at your financial situation.  Are your financial troubles the result of bad spending habits?  If after reviewing your income and a realistic budget you believe you can afford your house, car and other household expenses, plus a payment associated with a home equity loan or title loan, then taking out a loan to pay off your credit cards may be a good idea.

However, if after reviewing your income and budget, you realize that you don’t earn enough money to meet all of your financial responsibilities, then taking out a home equity loan or title loan is going to cause your home to be foreclosed or your car to be repossessed because eventually you will default on the loan.  If you are in this situation, consider ways to reduce your monthly expenses.  This may mean selling your home and finding a less expensive place to live or downgrading your vehicle.  You are generally better off if you act proactively to resolve your financial situation before you default on your secured loans because it gives you the opportunity to extract any equity from the property rather than losing it to the lender.  If after reviewing your financial situation you realize that you cannot afford to repay your debt, consider speaking with a bankruptcy attorney.

Lewisville, Denton, and Dallas Bankruptcy Attorneys - The Wright Firm, L.L.P.

A homestead exemption is a statute that protects a debtor’s home from being seized by creditors.  Every state has a homestead exemption of some sort, but Texas has a very generous homestead exemption.  It allows for an individual to protect their home during bankruptcy up to the maximum value of the property.  There is no cap on the value of the homestead exemption in Texas.  However, in order to be eligible to receive this protection, you must have lived in Texas for at least two years.  Homestead exemptions only protect the debtor’s equity in their home.  The home can still be foreclosed if a mortgage secured by the home isn’t paid.

Lewisville, Denton, and Dallas Bankruptcy Attorneys - The Wright Firm, L.L.P.

DALLAS CHAPTER 13 BANKRUPTCY ATTORNEY: Debtors in Chapter 13 bankruptcy file a repayment plan with the Court that states which creditors will be repaid and the terms of the repayment.  The plan is reviewed by the Trustee and the creditors who may or may not file an objection to confirmation of the plan.  Objections to confirmation ask the bankruptcy judge to not approve the Chapter 13 plan.  Usually these objections are filed because the Trustee believes that the plan doesn’t meet the requirements of the Bankruptcy Code or the creditors don’t like their treatment in the plan.  Objections to confirmation can be resolved by a hearing in front of a bankruptcy judge but usually they are resolved by agreement before the hearing.  Once all of the objections to confirmation are resolved, assuming the plan meets the other requirements of confirmation, such as the debtor having paid all payments due under the plan at the time of confirmation, the bankruptcy judge will sign an order confirming the plan.  Confirmation makes the plan an order of the court rather than just a proposal of reorganization of debts by the debtor.  A confirmed plan changes the creditor’s rights and sets forth what the debtor must do in order to receive a discharge in the bankruptcy case.

Lewisville, Denton, and Dallas Bankruptcy Attorneys - The Wright Firm, L.L.P.

TEXAS BANKRUPTCY LAWYER: DOWNWARD TREND IN FORECLOSURES NOT NECESSARILY A SIGN OF ECONOMIC RECOVERY

I recently read an article in the San Antonio Business Journal by Tricia Lynn Silva regarding the downward trend in foreclosures.  Her article says in part:

“As of Nov. 30 2011, a total of 10,124 foreclosure notices had been filed in the state of Texas for the month of November – marking a 208 percent increase from October filings, according to the latest report by RealtyTrac Inc.  Over the past 12 months, however, foreclosure filings were actually down 24.3 percent in Texas.”

I suspect that something else besides recovery in the housing market is responsible for the reduced number of foreclosures.  During the last year I have had several cases where a bankrupt client surrendered their home in their bankruptcy case.  As a result, the debtor discharges the debt and is no longer personally liable for paying the mortgage.  However, ownership of the home doesn’t transfer until the mortgage company forecloses on the property or the homeowner deeds the property back to the creditor.

There are several reasons why in this type of situation, a mortgage lender should want to obtain ownership of the home as soon as possible.  First, abandoned properties tend to lose value, because the property is not being maintained and because of theft and vandalism.  Second, property taxes continue to accrue, which are superior to the lien held by the mortgage company.  As a result, every year the house stays vacant, the value of the mortgage company’s lien is diminished by the additional property taxes.

Based on these considerations you would think that a mortgage lender would move to foreclose as soon as possible, but that simply doesn’t appear to be happening.  During the last year, in my experience mortgage lenders are taking longer to foreclose and in some instances refuse to foreclose or accept a deed in lieu of foreclosure when offered.  I asked another attorney who represents creditors why this is the case and she responded that the mortgage companies simply have too many properties to process at this time so they are not moving as quickly to foreclose on properties as the law allows.

I suspect that the recent downward trend in foreclosures is simply a lull while mortgage companies get caught up on their backlog of defaulted mortgages.  At some point they will likely create systems and procedures to increase their capacity for the foreclosure process and the numbers will begin to rise.

(Source: bizjournals.com)

Lewisville, Denton, and Dallas Bankruptcy Attorneys - The Wright Firm, L.L.P.

A strategic default is a property owner’s decision to stop making payments to a mortgage lender and to allow property to be foreclosed.  Whether a strategic default is a good idea depends on the property owner’s specific situation and the state in which the property is located.  Each state has its own set of rules that govern foreclosure and the mortgage lender’s ability to collect a deficiency after foreclosure.  A deficiency is the amount owed to a mortgage lender after a property is foreclosed.  For example, if a house is foreclosed and sold at auction for $200,000 but the amount owed to the lender is $250,000, then the lender may be owed a mortgage deficiency in the amount of $50,000.

For the purposes of this article, I will be discussing how Texas law affects a strategic default.  Texas is a recourse state, meaning that mortgage lenders can collect mortgage deficiencies.  However, mortgage lenders are limited in their ability to collect a deficiency to the difference between the fair market value of the property at the time of sale and the balance of the loan in default.  This is a significant limitation because properties sold at auction rarely are sold for the full fair market value of the property.  For example, a property worth $200,000 may be sold for $150,000 at auction.  The amount owed to the lender is $250,000.  The lender will only be able to obtain a judgment for $50,000, which is the difference between the value of the property and the amount owed.

In practice, determining a mortgage deficiency is seldom this simple.  Mortgage lenders will present evidence that the property is worth much less than what the homeowner thinks their property is worth.  As a result, a home worth $200,000 may be found to have a much lower fair market value which in turn increases the mortgage deficiency.  In order to contest the valuation of the property it may be necessary to hire an attorney and to have the property appraised, but there is no guarantee that the homeowner will be successful in proving the valuation of the home is higher, and this process can be expensive.

For some homeowners Chapter 7 bankruptcy is a good alternative to a strategic default.  Chapter 7 bankruptcy is relatively inexpensive, it will completely eliminate a homeowner’s liability for a mortgage deficiency and it will address other debts as well, such as credit cards and medical bills.  Before deciding to strategically default on a mortgage loan or to file Chapter 7 bankruptcy, homeowners should seek advice from an attorney with experience in these types of legal issues.

Lewisville, Denton, and Dallas Bankruptcy Attorneys - The Wright Firm, L.L.P.