How does an “automatic stay” work in a foreclosure process in Texas?

Because Texas permits non-judicial foreclosures, some Texas homeowners find it necessary to file bankruptcy to gain adequate time to try to negotiate with their lenders to save their homes.  The non-judicial foreclosure process is used when a power of sale clause exists in a mortgage or deed of trust – i.e., the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of a default.  In most instances, the terms of a non-judicial foreclosure only provide the homeowner with 30 days to try to negotiate an agreement with their lender once they post an intent to foreclose. Unfortunately, this is not enough time for many people.

However, if the homeowner petitions for bankruptcy, the federal bankruptcy court will issue an automatic stay which stop the lender’s and other  creditors’ collection processes – including foreclosure – while the bankruptcy case is active.  Filing Chapter 7 bankruptcy will delay but not permanently prevent a repossession or foreclosure; the automatic stay will expire approximately sixty days after your Chapter 7 bankruptcy case is filed. Only a Chapter 13 bankruptcy allows you to cure delinquent payments and keep your property.  Please note that under the 2005 bankruptcy law the automatic stay does not necessarily prevent repossession or foreclosure of your property after a dismissal of your bankruptcy case.

You should consult an attorney experienced in bankruptcy and preventing non-judicial foreclosures before your mortgagor files the foreclosure action.  An experienced bankruptcy attorney could negotiate a re-payment arrangement with your lender that would alleviate the need for a foreclosure action.  If a foreclosure cannot be avoided, your bankruptcy attorney can advise you on all relevant issues in a foreclosure vs. bankruptcy situation, including the long-term ramifications of having a foreclosure in your credit history, and your eligibility for and the critical distinctions between Chapter 7 and Chapter 13 bankruptcy proceedings.