If you don't want to keep your house when you file for Chapter 7 bankruptcy, you can "surrender" it or give it back to the lender. Read on to learn about the following:
We also explain when you can expect to purchase a home again after filing for bankruptcy.
You can use bankruptcy to erase mortgage debt and return or "surrender" your home to the lender. But filing for bankruptcy affects all debts—you can't choose which you'd like to include or file for bankruptcy on your home alone. You'll list everything you owe in your bankruptcy case, and if you complete your bankruptcy successfully, the bankruptcy discharge order will erase all qualifying debt.
The simple answer is no. If you want to keep your house in bankruptcy, you must continue to pay your monthly mortgage, among other things. If you can't afford it, you must surrender it or lose it to foreclosure.
When you bought your house, you agreed it would serve as collateral for the mortgage. The agreement gave your lender a lien (a type of ownership interest) on your house. The lien allows the lender to recover the home if you don't pay your mortgage.
Filing for bankruptcy won't remove a mortgage lien. If you don't pay your mortgage, the lender can enforce the lien by foreclosing on the house after your Chapter 7 case ends. Foreclosure could occur sooner in Chapter 7 or 13 if the bankruptcy court grants a motion to lift the automatic stay and allows the lender to take the home.
Learn everything you must do to keep a house in Chapter 7 bankruptcy.
If you do everything required to keep a house in Chapter 7 or 13, you'll retain it after bankruptcy. Generally speaking, you must be able to afford the monthly payment and protect the home equity with a bankruptcy exemption. Otherwise, you'll lose it to the lender because, as discussed above, the lender will use the lien rights to recover it.
Knowing which bankruptcy chapter you should file to save your house is crucial when you want to keep your home.
You "surrender" a home by relinquishing it to the lender. Chapter 7 bankruptcy filers often surrender a house when they can't afford the monthly payment and the home doesn't have much equity.
You'll indicate that you want to surrender the house when you fill out the official bankruptcy form Statement of Intention for Individuals Filing Under Chapter 7. On it, you'll list the creditor's name and address and the home address, and then you'll check the box marked "Surrender the property."
On the Statement of Intention for Individuals Filing Under Chapter 7, you tell the court and creditors whether you intend to surrender property serving as collateral for a debt. Typically, you'd list a home, car, and any other property with a lien. These types of debt are known as "secured debt" because the lien and collateral ensure loan payment.
For more details, see Completing the Statement of Intention for Individuals Filing for Chapter 7.
Below, we discuss some of the most common reasons you may wish to surrender your house in Chapter 7 bankruptcy.
Chapter 7 bankruptcy will discharge any mortgage debt associated with the property. Specifically, you won't be responsible for any portion of the home loan when you surrender the house.
If the bank foreclosed on the property before you filed Chapter 7 and sold it at auction for less than what you owe, you likely still owe the remaining balance, called a deficiency balance. (Keep in mind that some states' laws don't allow for deficiency balances.) Your mortgage lender can come after you to collect a deficiency balance, so you might face a lawsuit even after the lender foreclosed on your house.
A Chapter 7 bankruptcy discharge will eliminate an obligation to pay back a mortgage deficiency. As a result, after bankruptcy, you'll be free of any mortgage-related liability. For more information regarding your house in bankruptcy, see Your Home in Chapter 7 Bankruptcy.
If you're behind on your mortgage payments and want to keep your house, filing for Chapter 13 bankruptcy might be a better option. In Chapter 13, you can keep the house if you have enough income to make your monthly payment while catching up on the mortgage arrears. You'll typically have up to five years to catch up on the back payments.
You'll likely qualify for a home loan within four years of filing for Chapter 7 bankruptcy if you work to improve your credit score and earn enough to qualify. However, it will depend on the lender and loan type. Some lenders approve financing in as little as two years after bankruptcy.
Learn more about getting a home loan after bankruptcy.
Did you know Nolo has made the law easy for over fifty years? It's true—and we want to ensure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.