ALTERNATIVES TO FORECLOSURE: CHAPTER 13 SURRENDER

Consent Foreclosure

Another way to surrender your home is through a consent foreclosure. A consent foreclosure allows the homeowner to consent to a judgment of foreclosure being entered against him. In exchange for consenting to judgment, the creditor cannot begin deficiency judgment proceedings against the debtor.

When to Surrender Your Home During Chapter 13 Bankruptcy

It is possible to surrender a home at any time during a Chapter 13 bankruptcy. Ideally, the Chapter 13 surrender will occur during the creation of the bankruptcy plan. If you intend to surrender your home before the house goes back to the bank, the plan will be crafted as though you are renting property at a standard rate of rent for your family size in your geographic area.

You may still be able to surrender property after the Chapter 13 plan has been approved by the bankruptcy trustee. A word of caution about surrendering the property after the Chapter 13 plan has been accepted: the Chapter 13 plan is created based on your disposable income. If your income or expenses have not changed, you may not be paying any less money into the plan. The same amount of money that was allocated for mortgage payments could be collected each month to pay your other creditors.

Although most bankruptcy lawyers discourage it, some people sign reaffirmation agreements with their mortgage companies after they have filed for bankruptcy. A reaffirmation agreement is a binding contract. It is your agreement to continue paying on the mortgage. Reaffirmation agreements are not required to keep your home. Despite this, some people choose to sign them to ensure their mortgage company reports their payments to the credit bureaus to help them re-establish their credit.

If you have signed a reaffirmation agreement for your home after filing bankruptcy and later choose to surrender your home, there will be serious consequences. Because the reaffirmation agreement is signed after the bankruptcy has been filed, you are legally on the hook for repaying the debt. The mortgage company could foreclose on your home and sue you for any deficiency. This is the chief reason why bankruptcy lawyers typically discourage clients from signing them.

Involuntarily Walking Away from a Mortgage in Chapter 13: Foreclosure

Even if a person chooses to keep his or her house out of the bankruptcy, he or she still risks losing the house involuntarily. One of the protections that filing bankruptcy offers to a debtor is an automatic stay against actions by his or her creditors, including foreclosure actions. However, if the debtor finds that he or she cannot make the monthly payments under the repayment plan, and the plan does not provide for satisfying the mortgage loan, the lender may file a motion for relief from stay with the Bankruptcy Court, asking for permission to resume contact with the client, including proceeding with foreclosure.

The court will grant the waiver if the lender can show that its interests are not protected under the bankruptcy plan because it is not receiving payments on the debt. The lender can then institute foreclosure proceedings after the court grants the waiver. This is another reason why surrendering property in Chapter 13 bankruptcy may be a good idea.

"Can't I just Abandon the Home?"

Unfortunately, leaving a house is not the same as surrendering it. If you do not let the bank know you have left, the bank will continue to send letters and will eventually foreclose on your home. Furthermore, you will remain legally liable for any damages that happen to the property or anyone on the property. If your home is subject to condominium association payments or homeowners' association payments, you will remain legally liable for those as well.

The possibility of losing a home to foreclosure is frightening and stressful. If you are having financial trouble and cannot make your monthly mortgage payments, contact a Chapter 13 bankruptcy attorney who can discuss your situation with you and advise you of your options. Surrendering a home is a difficult step to take, but it may be a step in the right direction.