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In most instances, people file a chapter 13 bankruptcy in an effort to save their homes from foreclosure. They want to protect their equity and continue to have a place to live. However, there are some occasions where the obligations of keeping a home are just too much for a debtor, and they have to walk away. In these cases, the debtors propose in their bankruptcy to surrender their home to the mortgage company and walk away, many times because they owe more than the home is worth. This can create a problem.
A recent ruling in a Missouri Bankruptcy Court case, however, could create a stumbling block for this strategy if it becomes widely accepted. In In re Tyler, the court held that when a chapter 13 debtor's plan was confirmed providing for the surrender of the debtor's home to the mortgage company in full satisfaction of all claims, and the mortgage company did not object, said mortgage company did not have the ability to make a claim against the debtors for any shortfall in the balance owed after the sale of the property. This is certainly a good thing, as the debtors did not have to pay back any of that money.
Unfortunately, the court did not stop there. It refused to require that the mortgage company accept a deed from the debtors to accomplish the surrender, thus transferring ownership out of the debtor's name. As a result, the ongoing responsibility for post-bankruptcy filing maintenance, insurance and upkeep costs continued to be on the debtor's shoulders! So, on the one hand, while the debtor may have had no more obligations to the mortgage company, she remained on the hook for post-petition municipal charges/assessments/taxes, upkeep and maintenance and insuring the property (even if they moved out) unless and until the mortgage company obtained title through foreclosure.
For this reason, anyone planning the surrender of real estate as part of a bankruptcy should be aware that they may well continue to be responsible for ongoing cost of ownership until said time as title to the property changes through foreclosure sale. If you are considering bankruptcy, and this situation sounds like you, please contact my office to discuss it further to see what your options are.
Looking for more information about bankruptcy? Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey. It will give you the answers you need all in one place. Then call me at 888-857-8418 or contact me through this site for an appointment for a free consultation to discuss your case.