jeanie

Obviously, I did not articulate myself well. Many people who understand the finance laws will prioritize paying a mortgage over credit card debt. If the mortgage is not in default, even during bankruptcy the homestead law can protect the home.

There has been some highly publicized cases about this in Florida where people defaulted on unsecured loans, but were able to keep multi million dollar homes while in bankruptcy because the mortgage was current.

Financial advisers will often tell people to pay the mortgage first because of these homestead laws.

If 20k of unsecured debt is rolled into a mortgage, then the protection of the homestead law is usually lost. But it really depends on the laws of each state.

KennyBSAT

All of the protections and rules you refer to are unique and specific to Texas. Our laws, for better or worse, do not allow us to borrow against more than 80% of the equity of our own home "homestead" once any equity has been built up. Investment properties are fair game and can be borrowed against up to whatever the bank wants to loan. None of these rules apply elsewhere AFAIK.

jjmiller69

I have closed CC's since the refi but nothing that we ever carried over a balance. But I doubt it will have any affect.
I understand how slow remodeling gets old. We did 90% of it ourselves. Got tile to put down in last bathroom next week and can't wait for it all to be over. Good luck

monkeywrencher

Obviously debtors will prioritize payments towards secured creditors such as mortgage holders before unsecured creditors because a secured creditor can repossess the collateral and sell it to pay the note. But this is an issue different from the one you brought up.

Bankruptcy and Homestead statues are wholly separate. Bankruptcy is a right you have under federal law and its protections apply everywhere in the United States. If you file for any sort of bankruptcy all collection activities are halted until the bankruptcy court finishes the case or specifically allows them to continue. What most people do not understand is that even if someone is insolvent or unable to pay their debts they are not in bankruptcy. Bankruptcy occurs when a debtor declares they are unable to pay their debts and asks the court for help or rarely when a creditor goes to court and forces a debtor into bankruptcy. For individuals involuntary bankruptcy is rare.

If you are an individual and file a Ch. 7 BK at the end of the bankruptcy any debts you don't re-promise to repay will be discharged (generally) and you do not owe on them. However, the debtor or person filing for bankruptcy may pick and choose which debts he or she wants to repay and which he or she wants to discharge. In the case of unsecured creditors such as CC companies they are SOL and don't get any money (generally) because there is absolutely no reason for a debtor to pay the debt. However, if you have a secured creditor such as the holder of a car loan or a mortgagee they may ask the bankruptcy trustee to sell the property to cover their security interest unless the debtor promises to reassume the debt and pay it in full. If the property sells for less than the amount owed the creditor gets that amount and the rest is unsecured and probably will be discharged unless the debtor has a great deal of assets. If the property sells for more than the debt owed the remainder is divided amongst all of the unsecured creditors. If there is still money left over then the debtor gets it. This is rare because if the property is worth more than the amount owed on the note the debtor is most likely to reaffirm the debt and pay it back or sell the property outside the bankruptcy process for more money. The point is a debtor generally may choose whether or not to keep their house in a bankruptcy because they decide whether or not to pay off their mortgage.

Homestead protections have nothing to do with bankruptcy. In states that have homestead laws they prevent creditors from engaging in collection actions against a debtor's protected homestead. What is a protected homestead is defined by the state legislature. Homestead laws come into play when an unsecured creditor sues a debtor and wins. For example if your credit card companies sues you, wins and obtains a judgment for say $5000 they have piece of paper that says you owe them the $5000 but thats it. If you are a business or are not protected by a homestead statute the CC company can take their judgment to the sheriff and ask them to levy on your property to pay the judgment. What this means is that the sheriff will come take your stuff and sell it on the courthouse steps to pay back the $5000 the court ordered that you pay the CC company. In states with homestead statues the state legislature decided that there were certain things creditors can not take and haul off because it is against public policy. Examples often include your clothing, furniture, and family farm. However as a previous poster correctly noted homestead statues do not protect against voluntary liens such as mortgages. So if you borrow money on your house the homestead statute won't help if it even applies.

philemer

Dave Ramsey says never roll cr. card, or other revolving debt, into a mortgage.