Chapter 13 bankruptcy reorganization is a plan for wage earners with regular income that allows debtors to keep assets while paying down their creditors in three to five years. Although Chapter 13 plans protect homes, surrendering the property during bankruptcy can help a homeowner discharge significant mortgage debt and make the repayment process easier.
Fill out official Chapter 13 bankruptcy forms that require you to list debts and assets, identify creditors, and provide financial information. The necessary forms are available at the bankruptcy court for your district.
Read More: How to Keep Two Homes in a Chapter 13 Bankruptcy
Create a reasonable plan to repay creditors over time that surrenders the home. When creating the repayment plan, you need to specifically articulate your intention to surrender the home. If your plan is vague or incomplete in its intent to repay creditors and surrender the home, it will not be accepted.
File the Chapter 13 petition, which includes the official forms and repayment plan that notes your intention to surrender the home, with the bankruptcy court. Every state has a directory that provides the addresses for its bankruptcy courts; you can look online to identify the appropriate location to file the bankruptcy petition. When filing the Chapter 13 forms and repayment plan, you will be required to pay fees to the court.
Confirm the Chapter 13 plan at a bankruptcy hearing scheduled by the court after the initial documents are filed. During the hearing, the judge will review the plan with you, confirm your intention to surrender the home, and explain what effect surrendering the home will have on the bankruptcy debt should there be questions. If the Chapter 13 plan is satisfactory, the judge will officially approve it and allow you to surrender the property.
Prepare to move out of the home before the foreclosure sale. After the confirmation hearing in which the home is surrendered, the lender responsible for the mortgage will be allowed by the court to foreclose the home. Within 90 to 120 days, the bankruptcy court will set a date for the foreclosure sale. Once notified of the sale date, you can move out before it occurs.
You are under oath during all meetings and hearings that follow a Chapter 13 filing and can be prosecuted criminally for any deceitful or misleading statements.
If your Chapter 13 repayment plan is accepted by the court, your mortgage lender can't object to your decision to surrender the home.
You can decide to surrender the home after the Chapter 13 confirmation hearing by filing an amended plan. Once the amended plan is accepted, the mortgage lender will request a relief from the stay on foreclosure and proceed to foreclose the home.
When a home is surrendered under Chapter 13, the Bankruptcy Court will discharge your personal obligation to pay the deficiency debt that occurs when the amount the home sells for at foreclosure does not cover the remaining balance on the mortgage.
Colin Holloway is a legal writer and attorney who has practiced law since 2010. He specializes in accident and personal injury law, criminal law, employment law and family law.