You file bankruptcy and surrender your home through the bankruptcy. You do not have to worry about the house anymore right? Wrong! The bankruptcy takes care of your legal liability for the DEBT on the house. It does not remove your name from the deed of the property, meaning you are still the owner until the bank forecloses.

Steps to Take When Surrendering a Property Through Bankruptcy:

1. Purchase hazard insurance to cover any problems that arise while the house is vacant. A regular home owner's policy does not cover damage that occurs when the house is vacant.

2. Winterize the home (if applicable): draining water from the pipes and/or leaving the heat on so the pipes do not freeze or burst.

3. Maintain yard (if applicable): cut grass and trim as necessary to avoid citations from the city/county.

Failure to do so can result in penalties and fines: Failing to have insurance or winterize the house will not affect the bankruptcy, HOWEVER:

  • If the house is vandalized and/or the pipes burst the city/county will come after the owner of the house to fix the problems.
  • The bankruptcy only takes care of the loan on the house, not the deed. It is the debtor's property until a sale occurs to transfer ownership.
  • Fines or repair bills that arise after the filing of the bankruptcy are not part of the debts that are discharged.

Example: Debtor files bankruptcy and surrenders the real estate and moves out.  The house is vandalized and the mortgage company delays foreclosure. The debtor did not keep insurance on the house. The debtor now is not liable on the loan, but also cannot sell the house in the present condition, especially since the lien is against the property. The debtor is being told to board up the windows, pay fines, etc. Problem: Debtor cannot force the mortgage company to foreclose if it does not want to. The debtor is then stuck with the property including cutting the grass in the summer and winterizing it in the winter.