Tuesday, July 1, 2014

Even in Chapter 7 Bankruptcy, returning your house to the bank isn't like taking a sweater back to the store

So, you filed for bankruptcy protection under Chapter 7 and you announce you are surrendering your home, what next? Well, the bankruptcy is just a pause. What you have told the bank is it can have the property once the bankruptcy is completed and discharge is granted. Your work with the bank may not be complete yet.

The bank still needs to take control of the home. The bank can do this a couple ways. The bank can commence or continue foreclosure or accept a deed in lieu of foreclosure.  Another option is a short sale where the bank allows the property to be sold for less than the debt. The best option will depend on what you want or need. If you want or need to remain in the home for some time, foreclosure might be the way to go. The drawback is the foreclosure will end up on your credit report once it is commenced. If a quick out is what you are looking for, the deed in lieu of foreclosure.

The real problem is you don't get to chose the method you divest yourself of the home. It is up to the bank on the method and on the bank's time schedule. What's worse is liabilities incurred as a result of the property may become your debt. If you have a home owners' association fees or assessments for poor care of your property, you could be on the hook.

So the surrender of a home needs to be thought out and discussed as part of the bankruptcy planning. Without planning or flexibility, you may give up some of the benefits of filing bankruptcy.

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