Can Bankruptcy Help You Avoid Foreclosure in Texas?

 Posted on April 07, 2025 in Foreclosure

Facing home foreclosure can be emotionally and financially devastating. If you have fallen behind on your mortgage payments, you may be wondering whether filing for bankruptcy will stop the foreclosure process and let you keep your home. This is a complicated question and the answer depends on the facts of your case and the type of bankruptcy you file. A Kerrville, TX bankruptcy lawyer could likely suggest ways to keep you in your home, depending on your specific circumstances.

Does Bankruptcy Stop Foreclosure in Texas?

When you file for bankruptcy, the "automatic stay" comes into effect. It temporarily prevents your creditors from taking any action on your debts, including from foreclosing on your home. However, this relief only lasts for the duration of the bankruptcy case, which is usually three to six months for Chapter 7 and three to five years for Chapter 13. However, bankruptcy does not eliminate the mortgage–meaning that the lender could foreclose on the home once the automatic stay is lifted if payments are not current. While in Chapter 13 this might not be an issue as you would likely repay your mortgage through the payment plan, in Chapter 7 that is not the case, meaning that a Chapter 7 bankruptcy does not fully stop foreclosure.

How Is Foreclosure Affected by Chapter 13 vs. Chapter 7 Bankruptcy?

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to restructure debts like mortgage arrears over three to five years. You will make monthly payments to a trustee who distributes payments to creditors. A Chapter 13 bankruptcy will halt a foreclosure while you repay your debt through your court-approved repayment plan. But staying current on the plan is essential. If you default, the lender can resume foreclosure proceedings.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy liquidates your assets to pay back creditors. To qualify, you must pass a means test showing limited disposable income. Filing Chapter 7 will stop foreclosure temporarily through the automatic stay.

Chapter 7 discharges most unsecured debts such as credit card and medical debt. However, it does not eliminate the mortgage lender’s right to foreclose on property. That means that after the bankruptcy case is over and the automatic stay is lifted, if you cannot get current on your payments or negotiate an alternative repayment schedule with your lender, they will still be able to foreclose on your home.

Does the Texas Homestead Exemption Protect Me From Foreclosure?

Texas has a "homestead exemption" that allows you to keep your primary home in bankruptcy. It is among the most generous homestead exemptions available, allowing you to keep unlimited equity in up to ten acres of your primary residence in a city or up to one hundred acres in a rural area. While the Texas homestead exemption will in most cases protect your home from being sold to satisfy debts in a Chapter 7 bankruptcy, it does not shield you from secured creditors who have mortgages on your home.

What Are the Pros and Cons of Filing for Bankruptcy to Avoid a Foreclosure?

Pros

• The automatic stay will protect your home from foreclosure, giving you time to get current on your payments in order to avoid foreclosure. It will also provide relief from other debts, likely making getting current on your mortgage more manageable.

• If you file for Chapter 13, you can pay back your debt over a period of time and save your home from foreclosure.

• Because of the generous Texas homestead exemption, if you manage to get current on your payments and avoid foreclosure, you will very likely get to keep your home in bankruptcy.

Cons

• While bankruptcy can postpone foreclosure, it has serious credit consequences that linger. Your credit score can drop two hundred or more points.

• Bankruptcy filing costs may be an additional burden, although these may be waived in some cases due to financial hardship.

• If you file Chapter 7, the automatic stay is temporary, so you could still lose your home to foreclosure if you do not get current on your home payments.

• If the property that is being foreclosed on is not your primary residence, you may still have to relinquish it in bankruptcy to pay other debts even if you avoid foreclosure because it will not be protected by the homestead exemption.

Alternatives to Bankruptcy

Given the pros and cons of filing for bankruptcy to avoid foreclosure, and especially considering that filing for Chapter 7 bankruptcy by itself might not be enough to avoid foreclosure, before deciding if bankruptcy is your best option it might be a good idea to explore some of the alternatives to bankruptcy including:

• Mortgage modification: A loan modification is an agreement with the lender to rework the loan terms, usually by reducing the interest rate, extending the length of the loan, and/or adding any overdue loan amounts to the balance.

• Payment plan: If you are not too far behind on your payments, you could speak to your lender about making a payment plan to repay missed amounts over twelve or more months.

• Short sale: In a short sale, you would avoid foreclosure by selling and settling the mortgage for less than you owe. Although you would no longer have your home, you would avoid foreclosure.

• Deed in lieu: This process entails voluntarily deeding your property to the lender instead of going through a foreclosure. In exchange, the lender would release the mortgage.

• Forbearance agreement: If you can convince the lender that your inability to make the mortgage payments is temporary, you could enter into a forbearance agreement in which you would make reduced or no payments for a period of time.

Contact a Kerrville, TX Bankruptcy Lawyer

Losing your home is painful. Before making any decisions, consult an experienced San Antonio, TX bankruptcy attorney and housing counselor. At the Law Offices of Chance M. McGhee, we are dedicated to helping you understand all your options and guide you toward the solution that makes the most financial sense long-term. With the proper support, there are ways to get back on steady ground. Call us at 210-342-3400 to schedule a free consultation.