Homes

Under the law, your home is treated differently from any other property.  This is true not only under bankruptcy law, but outside of bankruptcy as well.

Sometimes the law helps to protect your home, other times it acts to make saving your home more difficult.  If you are trying to save your home though bankruptcy, chances are that you need to consider Chapter 11 or Chapter 13.

Homestead Protection

All States have homestead laws.  Homestead laws help homeowners protect some equity in their home.  Equity is the difference between the value of a home and the amount of all VOLUNTARY loans against the home.  Voluntary loans include mortgages, deeds of trust, home equity loans or lines of credit and other types of loans which the homeowner agreed to place against the home.

In some market conditions, the value of the home is less than or equal to the amount of the voluntary loans.  When this happens, the home has no equity and there is no homestead protection.  To keep the home, the homeowner will have to pay more than the property is worth.

The amount of the homestead changes from State to State.  Specific facts may also affect the homestead amount.  The laws in Wyoming  only provide $10,000 of homestead exemption per owner that resides in the property.  If the property is a mobile home that amount is reduced to $6,800 .

Foreclosure Laws in Wyoming

All States have foreclosure laws.  Foreclosure laws allow lenders to enforce debts against the home.  These laws vary widely from State to State.  The laws in Wyoming permit two types of foreclosure: judicial foreclosure and non-judicial foreclosure (often called a power of sale foreclosure).  Judicial foreclosure requires the lender to file a law suit and get a judge’s permission to sell the home to pay the debt.  Non-judicial foreclosure allows the lender to sell the home by auction, without the involvement of a judge.  Nearly all home foreclosures in Wyoming are done using the non-judicial foreclosure rules because this is faster, less expensive and easier than starting a law suit.

The Wyoming non-judicial foreclosure process is relatively quick.  The first step is for the lender to issue a formal Notice of Intent to Foreclose which is mailed to the property owner.  This Notice will set how much must be paid to cure a default, usually the balance of the mortgage, and advises that if the amount is not paid within ten days the lender may foreclose on the property.   Usually the owner gets several certified mail and/or regular mail copies.   If the 10 day period expires without the loan being “cured”, then the lender has the right to send a second notice, called a Notice of Sale.  This notice sets the date and time for the auction.  The Notice of Sale must be published once weekly for 4 consecutive weeks in a newspaper of general circulation.

Only after the Notice of Default and Notice of Sale periods have both expired, the lender can then actually sell the home at an auction foreclosure sale.  This is usually done on the steps of the county courthouse.   Anyone can bid on the property and the property is sold to the highest bidder.  That bidder gets a certificate of sale form the Sheriff who conducts the auction.

In most cases the owner can continue to reside in the property for a period of 90 days (if the property is agricultural property this period may be one year), and any time during that 90 days the owner has the right to buy back the property (redeem) by paying the person who purchased the property at the public sale, the amount they paid plus interest at 10% per annum.  Any lien holders that are junior to the foreclosing mortgage have one successive month periods to  redeem the property. (Often if there are many junior mortgages, the creditor desiring to foreclose may do a judicial foreclosure to deal with these junior liens in a faster manner)

Once the foreclosure sale is over and the redemption periods have expired, the successful auction bidder receives a deed to the property.  The former owner is now a tenant in the property and the new owner will probably begin an eviction lawsuit to force the former owner out of the property.

What Does Filing Bankruptcy Do?

Filing a bankruptcy case interrupts this process and causes everything to freeze.  If the foreclosure sale is already completed, then it is almost impossible to save the home for the homeowner.  For that reason, any bankruptcy which is filed to try to keep a home must be filed before the foreclosure sale date.

Different kinds of bankruptcy, Chapter 7, Chapter 11 and Chapter 13, work differently in a foreclosure sale situation.  You should see those sections for further information, but generally, Chapter 11 and Chapter 13 are best adapted to try to keep the home by making up missed payments.

Lien Stripping

Those who file Chapter 11 and Chapter 13 cases can sometimes remove (or “strip”) junior mortgages or liens from their home and discharge them just like unsecured debts.  To strip a mortgage or lien, the home must have a value which is lower than the amount of a senior mortgage or lien.  Here is an example where the line of credit can be stripped:

home value = $475,000

mortgage = $500,000

line of credit = $110,000.

Here is an example where nothing can be stripped:

home value = $510,000

mortgage = $500,000

line of credit = $110,000

Notice that the only difference between the two is that in the second example, the value of the home is MORE than the amount of the mortgage.

Lien stripping requires extra legal work, so you should expect to pay extra for this work to be done.  Some Bankruptcy Judges allow us to use a relatively inexpensive procedure to strip a lien, others require a longer, slower and much more expensive process.  There is no way to control which Bankruptcy Judge would be assigned to your case.

Lien Avoidance

Sometimes people have debts against their homes which they did not agree to create.  These would include judgment liens, mechanic liens and tax liens.  It is possible in a bankruptcy case to remove judgment liens and mechanic liens (but not tax liens) if the amount of the lien interferes with the amount of the homestead.  Here is an example of how this works:

home value = $550,000

mortgage = $500,000

homestead (single parent with child) = $75,000

judgment lien = $80,000

In this case, the judgment lien could be removed completely because the amount of equity in the home $50,000 ($550,000 – $500,000) is less than the homestead amount.  Here is another example:

home value = $550,000

mortgage = $430,000

homestead (single parent with child) = $75,000

judgment lien = $80,000

In this case, the judgment lien can only be partially removed because the amount of equity in the home $120,000 ($550,000 – $430,000) is more than the homestead amount by $45,000 ($120,000 – $75,000).  In this case, the judgment lien would be reduced from $80,000 to $45,000.

This type of lien avoidance can be done in any type of bankruptcy case, Chapter 7, Chapter 11 or Chapter 13.   Lien avoidance requires extra legal work, so you should expect to pay extra for this work to be done.

This page was last updated: March 24, 2011