Why “Surrender” in Bankruptcy Doesn’t Mean Surrender

10 Feb Why “Surrender” in Bankruptcy Doesn’t Mean Surrender


In bankruptcy, some words don’t have their ordinary meanings. “Surrender” is one of these words.Many people who file bankruptcy surrender real estate or their car. They think that once they tell the Court, the Trustee and the creditor that the item is being surrendered they’re done with it. They’re not.

When property is surrendered in bankruptcy, it doesn’t mean that the creditor automatically becomes the owner. All that it means is that creditors who have liens on the property can exercise their state law rights with respect to the property. In non-legalese, this means that they can foreclose on or repossess the property as your state’s laws allow. It DOES NOT mean that they become the owner UNTIL they complete the state law requirements for becoming the owner.

In the case of real estate, this means that they must file, notice, and complete a foreclosure auction. In the case of a car, this means that they must follow state law procedures to allow it to repossess and sell the car.

Until this process is completed, you remain the owner–even if the house is vacant or the car is up on blocks or was given back to the bank. It means that if the mortgage company is taking its own sweet time in foreclosing, you’re still the owner. It means that if the car loan company doesn’t want the car, you’re still the owner. And remaining the owner has big implications.

In the case of a house, if there are HOA or condo fees, as the owner you are responsible for them–the bankruptcy only wipes out the fees that were duebefore your case was filed. If your HOA or condo or municipality requires you to keep the law mown, and you don’t, it can do it and charge you for it. If the property deteriorates, the municipality might condemn the property and could even tear it down as a safety hazard…and charge you for it. If someone slips on an icy walkway, as the owner, you’re responsible.

For these reasons, I recommend that you keep the property insured until it’s actually foreclosed upon. (The bank’s force place insurance protects the bank, not you.) I also usually recommend renting out the property for a low rent until the foreclosure occurs–just enough to pay the HOA or condo fees, keep it maintained, and pay the insurance.

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Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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