Many homeowners who are in default on their mortgage or have been sued for foreclosure consider filing bankruptcy. The decision of when or if to file bankruptcy must be considered on a case by case basis, and should be decided after consultation with an attorney.
Filing for bankruptcy protection may include surrendering your home to the bankruptcy trustee. The distinctions between types of bankruptcy chapters is not important to the subject of this post. The discussion applies to anyone who has surrendered their home to the bankruptcy trustee.
The act of surrendering the property to the trustee is basically giving the trustee permission to sell the property as part of the bankruptcy estate. Meaning the trustee may sell the property and distribute the proceeds to satisfy debts you are seeking to discharge and are included in your bankruptcy plan.
In many cases the debt secured by the property surrendered equals or exceeds the value of the property. In this instance the trustee may decide not to sell the property. If the trustee does not sell the home it remains the property of the homeowner until such time as a secured party enforces its lien on the property.
When the property is surrendered under the bankruptcy plan but is not sold by the trustee, the homeowner is personally discharged from the debt. Following discharge the homeowner has no more legal obligation to pay the mortgage; But, if the owner doesn’t pay the mortgage the bank can foreclose to take title to the property. The distinction is whether the homeowner is personally liable for the debt.
The homeowner has no obligation to, and should not vacate the subject property until the bank completes its foreclosure and takes title to the property. Until such time as title is legally transferred the homeowner remains responsible for various recurring charges that come due following the bankruptcy discharge date, e.g. community association fees, property taxes, etc. During the time you are still legally obligated to pay these fees you should remain in the home you are maintaining.
As for the banks burden in foreclosing its lien and taking title to the subject property, it still must prove it owns your loan, has met all conditions the loan requires before filing suit, and must overcome all defenses you may have to the foreclosure action. The bankruptcy does not relieve the bank of any of its burden to prove its case before it can obtain final judgment.
If you are in foreclosure or default, and considering filing bankruptcy, please call me so we can discuss how I can help.
This post is not intended to be legal advice. Before making any decisions regarding bankruptcy, foreclosure, or other decisions affecting your obligations to pay debts, you should seek the advice of an attorney who is familiar with your particular situation.