You may be considering a chapter 13 bankruptcy not to save your home from foreclosure, but to walk away from it. You might be upside down on the mortgage, not be able to sell it, and not be able to make the monthly payments.
But at the same time, you want to be able to pay at least a portion of your debts and be done with them in 3 to 5 years. In this case, you would propose in your bankruptcy to surrender your home to the mortgage company and walk away. You can do this, as long as you plan for it.
The Good News
When a chapter 13 debtor's plan providing for the surrender of his or her home to the mortgage company in full satisfaction of all claims is confirmed by the court, and the mortgage company does not object, said mortgage company does not then have the ability to make a claim against the debtors for any shortfall in the balance owed after the bank sells the property. This is certainly a good thing.
The Bad News
Unfortunately, a ruling in a Missouri Bankruptcy Court case could create a stumbling block for this strategy if it becomes widely accepted. In the case of In re Tyler, the court 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 (such as condo fees), insurance and upkeep costs continued to be on the debtor's shoulders!
So, on the one hand, while you may have no more obligations to the mortgage company, you would remain on the hook for post-petition municipal charges/assessments/taxes, upkeep and maintenance and insuring the property (even if you moved out) unless and until the mortgage company obtained title through foreclosure.
What Do You Do?
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. Any plan should be based on expenses that include these costs, so that you can afford the plan payment as well as the other costs associated with you rhome.
If you live in southern New Jersey, and are considering bankruptcy, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your situation and what your options are.
If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.