When you’re filing bankruptcy, the word “surrender” doesn’t actually mean surrender. Bankruptcy has a way of altering the meaning of words that we all think we know under normal circumstances and surrender just happens to be one of them. For instance, many bankruptcy petitioners surrender their car or their property. After telling the Court, the bankruptcy trustee, and the creditor of the surrender of the property, they can wash their hands of it. This isn’t actually true.
When property is surrendered during the bankruptcy process, the creditor doesn’t simply become the owner automatically. Surrender during bankruptcy just means that any creditors with liens on the property being surrendered can exercise their legal rights regarding the property. In other words, they can foreclose or repossess the property according to state law. They don’t become the owner of the surrendered property until they exercise the state law requirements to become the owner of the property.
For instance, when a piece of real estate is surrendered during the course of bankruptcy, the creditor must file, publish notice, and then complete a foreclosure auction. When the surrendered property is a vehicle, the creditor must follow the applicable state law to legally repossess and sell the car.
Until the appropriate legal process is completed, the bankruptcy petitioner who “surrendered” the property is still the owner according to the law. The house could be vacant and the car stripped and abandoned on a random city block – it doesn’t matter. In some cases, the process that completes the transfer of ownership can be quick. In other cases, creditors aren’t in a hurry to assume ownership. They might purposefully drag out the foreclosure process. The car financing company might decide they simply don’t want the car. In these cases, you are still the owner and subject to all the implications of being such.
In the Case of a Surrendered House That the Creditor Has Not Claimed:
- You, as the owner, are responsible for any accumulating HOA fees. The bankruptcy will only discharge HOA debt prior to filing.
- You, as the owner, are responsible for mandatory upkeep on properties subject to HOA or municipality rules. You are also responsible for fees associated with failure to adhere to this type of regulation.
- You, as the owner, would bear the financial burden if the property deteriorates, is condemned by the city or torn down as a safety hazard.
- You, as the owner, are liable for the financial repercussions if an accident were to occur on your property (someone slipping on icy front sidewalks, etc.)
To protect yourself from the above potential risks, it is recommended that you keep the property insured until the creditor takes the appropriate action that would legally transfer ownership. If you have other questions regarding how bankruptcy affects ownership of property or how to surrender property during bankruptcy, please contact an experienced bankruptcy attorney at southern California’s Westgate Law.