What Happens If I Surrender My House in Chapter 7 Bankruptcy?

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 filing for bankruptcy on your house, surrendering your house in Chapter 7, and paying to keep your house in bankruptcy. We also explain when you can expect to purchase a home again after filing for bankruptcy.

Can I File for Bankruptcy on a House?

You can use bankruptcy to erase mortgage debt and return or "surrender" your 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.

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.

Can I File for Bankruptcy and Keep My House Without Paying for It?

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'll surrender it or lose it to foreclosure.

Here's why.

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. A foreclosure could occur sooner 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.

What Happens to a House After Bankruptcy?

If you do everything required to keep a house in Chapter 7 or 13, you'll retain it after bankruptcy. If you don't, and the lender didn't file a motion to lift the stay, the lender will likely foreclosure after the Chapter 7 case ends.

Knowing which bankruptcy chapter you should file to save your house is crucial when you want to keep your home. 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.

How Do I Surrender a House in Chapter 7 Bankruptcy?

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 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.

Why Would I Surrender My House in Chapter 7?

Below, we discuss some of the most common reasons you may wish to surrender your house in Chapter 7 bankruptcy.

• You can't afford the mortgage payment. For many people, this is the primary reason to surrender their house.
• Your mortgage balance is more than what the house is worth. If your mortgage balance is substantially greater than the value of your home, it may not be worth keeping. Many debtors decide that they can move to a comparable place and pay less. If you are upside down on your house, Chapter 7 provides a simple way to walk away. Keep in mind, however, that in some cases, you can eliminate a junior mortgage in Chapter 13 bankruptcy.
• You don't want to keep the house. People have both personal and financial reasons for wanting to surrender a home. However, if you have equity in the home, consider selling it yourself to realize the maximum profit instead of surrendering it. Otherwise, the Chapter 7 trustee might sell your house, give you the portion you're entitled to receive under the homestead exemption, and pay your creditors with the remaining proceeds. If the trustee doesn't sell it, the lender will auction it off in a foreclosure sale to the highest bidder.

Will Chapter 7 Bankruptcy Eliminate My Mortgage Debt?

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. (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.

Can Chapter 13 Bankruptcy Help Me Keep My House?

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.

How Long After Bankruptcy Must I Wait Before I Can Buy a House?

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.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true—and we wholeheartedly encourage research and learning. You'll find many more helpful bankruptcy articles on Nolo's bankruptcy homepage, and information needed to complete the official downloadable bankruptcy forms is located on the Department of Justice U.S. Trustee Program.

However, online articles and resources can't address all bankruptcy issues and aren't written with the facts of your particular case in mind. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.