Filing Bankruptcy With a Deed of Trust

A deed f trust or trust deed is a legal documentation of a debt. It is a form of mortgage in the context of real estate laws. It acts as record of evidence to hold a property as security by the lender for loan disbursement. The property ownership is transferred to the borrower once he or she pays back the loan amount.

Bankruptcy Filing

When you are facing financial turmoil you may try choosing various corrective measures like debt settlement, debt consolidation and so on. As a last measure, you can choose to file for bankruptcy. However, filing for bankruptcy with a deed of trust can land you in big trouble depending on the type of the Bankruptcy code under which you are filing.

Chapter 7 Filing

Chapter 7 bankruptcy code is a liquidation bankruptcy. It means that all non-exempted assets of the debtor will be taken into bankruptcy estate. The trustee responsible for your bankruptcy processing will sell these assets in the estate and the proceedings from the sale are used to pay and clear all unsecured debts. The remaining debts are discharged and thus you get a new financial start.

Problems in Chapter 7 Filing

With a deed of trust, if you file Chapter 7 bankruptcy, then you may face the risk of losing your property or home. You can escape it only if the equity of the property is exempt under the homestead or other kinds of bankruptcy estate exemptions as per the state’s laws. In case of non-exempt equity in the property, bankruptcy trustee can liquidate the property.

Foreclosure of the Property

Your property may also face a foreclosure in Chapter 7 bankruptcy filings. Foreclosure can be done with an immediate effect (even when the bankruptcy process is pending) at the request of the money lender, if you have not regularly paid the payments in the mortgage. This can be done because in your deed of trust, you sign a promissory note to repay the debt. This promissory note gives all rights to the lender to foreclose the property during the failure of mortgage payments. You could avoid foreclosure only if you reaffirm the mortgage. However, reaffirmation of mortgage will increase your debts.

Getting Legal Help

You may have to face serious issues when you file for bankruptcy with a deed of trust. Hence, in order to prevent the loss of your property with bankruptcy filing, it is necessary to take legal advice from an experienced bankruptcy attorney.