Telling the bankruptcy court that you’re surrendering property in a Chapter 7 bankruptcy doesn’t mean it’s not yours anymore.
When you file for Chapter 7 bankruptcy, you complete a document titled “Statement of Intention.” That document outlines for the court what you intend to do with the property that’s secured by debts.
Think mortgages and car loans.
You can indicate that you’re going to keep the property and pay the debt, keep the property and pay off the debt through the bankruptcy court, or surrender the property altogether.
The choice is yours. But just because you say something, doesn’t mean it’s set in stone.
Rather, this is a statement of your intention – what you want to do with the debt and the property. It doesn’t reflect what the lender can or will do.
You Still Own The Property Until It’s Transferred
In the case of a house, your statement that you’re giving it up in the bankruptcy means nothing more than you don’t want the house anymore.
It doesn’t mean that you have actually given it up.
To give up legal title to property, the lender needs to accept ownership.
- Redemption, Reaffirmation and Surrender: Your Options In Bankruptcy
- Can You Reaffirm A Mortgage After Bankruptcy?
Transfer Of Ownership Requires Legal Action
Though you’ve offered up the property to the lender as part of your bankruptcy, there’s still a legal process involved in taking it back.
In the case of real estate, the lender will usually continue with a foreclosure proceeding. Depending where you are, that could take some time to complete.
You’re free to offer up the property to the lender through a deed in lieu of foreclosure, short sale or other mechanism but it’s not necessary.
In fact, just leaving the lender up to its own devices will often give you more time to pack up the house and find a new place to live.
Your Financial Responsibilities To The Lender
Until the lender takes back the property, you don’t need to keep making payments.
Once the lender picks up the property or forecloses, you don’t need to make payments.
So long as you didn’t reaffirm the debt and the discharge comes through, you’re all set.
Your Other Financial Responsibilities
If there’s a homeowner’s association, you’ll need to pay your new HOA dues until such time as the property is legally transferred to the lender. The HOA fees that accrued up to the date of filing bankruptcy will be discharged in your bankruptcy case, but those that accrue once the case is filed are not going to be wiped out.
You’ll also need to pay your homeowner’s insurance and property taxes (unless the lender is paying them).
With respect to vehicles, remember state laws about keeping insurance in place.
Talk With Your Lawyer
Filing for bankruptcy involves keeping lots of balls in the air, and issues can get confusing.
Talking with your lawyer as the process unfolds will help you keep things clear, making the most of your bankruptcy.