"Home foreclosure" is the phrase probably most feared by homeowners in financial distress. Repossessed cars can be explained away as sold, totaled or loaned. Repossessed appliances discreetly disappear, spirited quickly away by a couple of burly men. However, there is nothing discreet about a home foreclosure and sale. It is a very public transaction, with published notices and moving vans in full view of family, friends and neighbors. The event is emotionally wrenching.

State laws control proceedings and sales; they vary highly from state to state. Some processes are complex and long, while others move quickly, selling the family homestead at public auction in as little as 90 days.² In the majority of the states, the process scatters the foreclosure sales across the month based on a variety of timetables and deadlines. But in a handful (Texas and Georgia being the leading examples), all home foreclosure sales occur on a single day in each month. Texas "Foreclosure Tuesday" is the first Tuesday of the month when the foreclosed property is sold at public auction, literally on the courthouse steps. Everyone knows about the sale. Everyone can find the properties to be sold. This makes Texas an ideal state in which to gain an overview of the impact of home foreclosure sale proceedings on chapter 13 filings and discharges.

The study performed here examines what happens with chapter 13 filings on and around Foreclosure Tuesday in the Houston Division of the Southern District of Texas.³ Case filings were tracked for 20 business days centered on the April Foreclosure Tuesday for the years 1999, 2001 and 2003. Only basic data were collected, such as current status, if a wage order had been imposed, plan length, etc. Statutory plan length limits meant all 1999 sampled cases examined had been closed (dismissed, converted or discharged), with increasing percentages of remaining open cases for 2001 and 2003 (15 percent and 31 percent, respectively).⁴ Filing counts and current status are shown in Table 1. As typical of most districts, filings almost doubled for the sampled periods over the five years examined. Overall discharge rates ran just below 25 percent for 1999, well under the national average of about 30 percent.⁵

There is a striking effect of Foreclosure Tuesday on chapter 13 filing rates (Figure 1). Typically, chapter 13 daily filings range between 10 and 20 per day until the Monday before Foreclosure Tuesday. Then on that Monday, the rush begins. Homeowners surge forward to save their property. The effect is shown more dramatically by regrouping the data, separating the filings for these two days from the balance of the month (Figure 2). During 1999 and 2001, 50 percent of the sampled chapter 13 filings occurred on the Monday before and the morning of Foreclosure Tuesday, and in 2003, 40 percent of the filings occurred on those two days.⁶ The automatic stay stops the auction on the courthouse steps.

As shown in Figure 4, the dismissal/ conversion rates of filings made on Monday and Foreclosure Tuesday are markedly greater than they are for filings made on other days of the month. For 1999, the rate is 86 percent for the two days (or conversely, a 14 percent discharge rate) contrasted with 68 percent (or a 32 percent discharge rate) for the petitions filed during the balance of the month.

Going one step further, the incremental discharge/conversion rates by six-month periods following filing shows the "Monday/Foreclosure Tuesday" petitioners significantly peak in the first six months after filing, but then are not significantly different than the petitioners filing during the rest of the month (Figure 3). The difference was most dramatic in 1999, when nearly one-half of the cases filed around Foreclosure Tuesday were dismissed or converted within six months. If the bulk of the transactional costs occur in the first six months, then addressing these initially high failure rates becomes critical in improving the overall transactional efficiency.

Wage order, plan length and pro se filing data were also examined. In the Southern District of Texas, debtor education is uniform,⁷ though payment of the mortgage under the plan was not a practice in the sample period. Pro se filing data (Table 2) indicates that the majority of the pro se filings occurred on the Monday/Foreclosure Tuesday, with a high likelihood of dismissal/conversion in the first six months. However, the sample size is small and may not be large enough to allow a significant inference about connections among pro se status, date of filing and case outcome. Similarly, wage orders (Table 3) were not widely used in the Houston Division and the limited dataset precludes conclusions, but qualitatively there is an indication that imposition of wage orders at the outset of the case may improve the chances of the "Foreclosure Tuesday" petitioners surviving those first six months.

Finally, the overall effect of plan length was reviewed (Table 4). The 36-month plans had discharge rates of 64 percent, while plans 48 months and longer had discharge rates of 32 percent (1999 data). To practitioners, this result would seem intuitive as the longer the plan, the higher probability that something throws a financial wrench into the debtor's works.⁸ The plan length analysis also found that 95 percent or more of the petitions dismissed during the first six months after filing were dismissed prior to confirmation (Table 5).

Conclusion

This article is a preliminary examination of the influence of Foreclosure Tuesday on chapter 13 filings and outcomes in the Southern District of Texas. The data suggest that at least in Texas, where the family homestead is auctioned on the courthouse steps on a recurring date of each month, any study or remedial steps implemented to improve debtor performance should consider the particular characteristics of these late filers. The study did not look at whether the failed petitions were later re-filed, or whether the homestead was lost after dismissal/ conversion, or any other of a host of interesting variables. These questions are left to a later time and to another study.

Footnotes

¹ The contributing editor for this article was Gordon Bermant, Burke, Va., [email protected]. The study was started under the judicial internship program between Hon. Wesley Steen and the University of Houston Law Center, and continued under Judge Steen's gracious mentorship. Return to article

² Tex. Prop. Code Ann. §51.002 provides for a 20-day demand notice letter, followed by a foreclosure notice filed with the county clerk at least 21 days before the sale. In reality, the process is much longer as all parties attempt to negotiate payment schedules, etc., to avoid foreclosure and repossession. Return to article

³ Grateful acknowledgment is made to Barbara L. Griffin of the U.S. Department of Justice, who posed this question while discussing other preliminary work done by the author on chapter 13 filings in the Houston Division. Return to article

⁴ Final Case Sampling occurred in mid-March 2005. Return to article

⁵ Systematic work was reported by Bork, Michael, and Tuck, Susan D., "Bankruptcy Statistical Trends, Chapter 13 Dispositions (Working Paper 2)," Administrative Office of the U.S. Courts (reporting survey of chapter 13 cases filed between 1980 and 1988). Various reports published since that time tend to converge on a completion number of 30 to 35 percent, with substantial variation across districts. Return to article

⁶ Time will tell if this change from 2001 to 2003 marks a trend away from extreme concentrations of filings on Foreclosure Monday and Tuesday. Return to article

⁷ There is no defined rule stating that debtor education is required, but it is general and consistent practice by the private trustees to require the course before the §341 hearing. Return to article

⁸ Others in their studies have argued that the longer plan periods relieve the financial stress by spreading payments over a longer period. This latter conclusion is not supported by the data reported here. Braucher, Jean, "An Empirical Study of Debtor Education in Bankruptcy: Impact on Chapter 13 Completion Not Shown," 9 Am. Bankr. Inst. L.Rev. 557, 574-575 (2001). Return to article