Can I Surrender My House in Chapter 13 Bankruptcy?

Learn how to give up your house while you're in a Chapter 13 case while still enjoying the benefits of wiping out other debts.

Sometimes your Chapter 13 case doesn’t work out the way you intended. For instance, you might file to save your house, but lose the income needed to make your payments. Or perhaps you decide that you want to give the house back to the mortgage company so you can walk away from the monthly payment obligation. While it’s possible to surrender the house through your Chapter 13 case, some jurisdictions allow surrender only before your Chapter 13 bankruptcy payment plan is confirmed (approved) by the bankruptcy court.

Surrendering a House in Chapter 13 Bankruptcy

Although the particular process of letting go of your house in Chapter 13 bankruptcy can vary in different jurisdictions, it usually entails nothing more than proposing a new payment plan that removes the mortgage and the arrearages. These expenses will no longer be one of the secured debts paid by the Chapter 13 trustee (although some payment might be made in the form of an unsecured debt). If no interested party objects the proposed surrender, the bankruptcy judge will most likely approve the new plan.

Before Confirmation

Some lenders don’t move forward with foreclosures quickly—often in an attempt to avoid the expense to purchase, maintain, and sell the property. The problem is that a cash-strapped homeowner will remain responsible for the property taxes, homeowner’s association dues, and upkeep of the property until it changes hands.

In an attempt to overcome this issue, some debtors (the person filing the bankruptcy) have filed Chapter 13 plans containing a special provision that allows property ownership to transfer to the lender automatically when the bankruptcy court confirms the plan. If this transfer is spelled out in the proposed plan and the creditor doesn’t object, some bankruptcy courts have concluded that the confirmation order transfers title to the lender without a need for a foreclosure process or even a deed (check with a local bankruptcy attorney).

After Confirmation

At confirmation, the plan becomes a contract between you and your creditors. While some courts will allow you to surrender the house after confirmation, others will not. In fact, some courts have held that debtors lose the right to surrender their property after confirmation, which can produce a harsh result if the property loses value or suffers damage that a debtor cannot repair. It might leave you with few alternatives except foreclosure. In that case, here are some actions that will get you a similar result.

  • Stop making mortgage payments. If you don’t make your payment, the bank will file a motion asking the court to lift the automatic stay, which, when granted, will allow the bank to start foreclosure proceedings. If you remain in the Chapter 13 case, you can discharge other debts including any deficiency balance that might be left after the lender sells your house.
  • Dismiss your Chapter 13 case. Your lender will be free to foreclose and you'll lose all the benefits of the bankruptcy case, like protection from your other creditors and a discharge (getting rid) of your debts.
  • Dismiss your Chapter 13 case and file a new one. Your new repayment plan will provide for the surrender of the house at confirmation.

If you are no longer trying to keep your house, a Chapter 7 bankruptcy might be a quick way to get rid of dischargeable debt, such as credit card bills, without paying into a repayment plan. The tricky part about this approach is that you’ll need to qualify for a Chapter 7 discharge by passing the means test.

Speak With an Attorney

The complicated nature of Chapter 13 matters makes this area of bankruptcy difficult for most individuals to handle on their own. Compounding the complexity is the fact that not all courts handle issues in the same way. It’s strongly suggested that you consult with a local bankruptcy lawyer familiar with the practices in your area.

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