Moving, Bankruptcy AND Planning A Smooth Exit.

Noxious Weeds!

What happens when you surrender a home in bankruptcy?  Must you move the second a bankruptcy is filed?  Do they give you time to move or will your possessions be thrown out on the front lawn for the neighbors to view?

When you surrender a home through bankruptcy, there will be a specific process for the lender to obtain the home.  Let’s walk through the general process.

1.  In a Chapter 7, the lender must wait until the 341 Meeting of Creditors  so the trustee may determine whether or not he or she wants the property.
2. If the trustee, abandons the property, the lender may lift the automatic stay to begin foreclosure proceedings or they may wait until your discharge.
   • If the automatic stay is lifted, your attorney should update you the lender is seeking permission to foreclose.
3. The timeline will depend on whether your state is a judicial foreclosure or a non-judicial foreclosure state.  Ask your attorney which type of state you live in and the average timeline for that process.
   • Judicial Foreclosure means the lender will need to file a lawsuit to seek permission to foreclose on your home.
   • Non-Judicial Foreclosure means the lender may post by publication to foreclose on your home.
     • Publishing in a newspaper for four weeks that your home will be sold on the courthouse steps is what will take place.
4. In a Chapter 13, the process will depend on the local practice.
   • If you surrender the home at the beginning of the Plan, then generally the process occurs one of two ways.
     • The lender may begin foreclosure proceedings once the Plan is confirmed or approved by the court; or
     • The lender will lift the automatic stay to begin foreclosure proceedings.
5. Then the foreclosure process will proceed as discussed above in paragraph 3.
6. If you surrender the home in a Chapter 13 during the lifetime of the Plan due to changed circumstances, the process will be the same as in paragraph 4.
   • The lender may be able to begin foreclosure proceedings once the new Plan is approved or lift the automatic stay depending upon local practice.

The biggest mystery of surrendering the home is the actual timeline of when the lender WILL foreclose or IF they will foreclose.  In many districts, the court may not force the lender to take the home back and this may drive one absolutely insane.  Try to view this uncertainty of time as a positive and not a negative.  The longer it takes to foreclose, the longer you have to prepare to move.

The minute you decide to surrender the home,  you should begin the moving process.

1. Divide your possessions into three categories.
   • Stuff you definitely want to keep.
   • Stuff you definitely want to donate or throw away.
   • Stuff you are not so sure.
2. Every week go through each pile.
   • Stuff you are definitely keeping but not using currently go ahead and pack.
   • Remove the stuff you are not keeping from the home on a weekly basis.
   • Continue sorting through stuff you are unsure of and place in one or the other two piles.
3. Take the mortgage payment you were paying or anticipated rent payment and place it into a separate bank account.
   • Check with your attorney because this process is dependent upon local standards.
   • Save this money for moving as well as deposits for utilities and rent.
   • DO NOT SPEND THIS MONEY BECAUSE THE COURT WILL NOT BE SYMPATHETIC IN MOST CASES IF YOU HAVE HAD THE OPPORTUNITY TO SAVE SEVERAL MONTHS OF RENT AND YOU FAILED TO DO SO.
4. Begin to look for a new place to live so you have an idea ahead of time.
5. Have a back up plan if you need to stay somewhere for a couple of weeks or months before moving into a new place.

Check with your attorney for the local process. I advise my clients to NOT MOVE until the foreclosure has taken place.

1. Until a foreclosure has taken place you own the property.
2. This means you are responsible to keep the property in compliance with code regulations.
   • If you have peeling paint or you fail to cut the grass you may be charged with a code violation.
   • If you have moved from the property, you may not receive the code violation.
   • If you do not receive the code violation notification and fail to remedy the violation a court hearing will be issued.
   • If a court hearing is issued and you fail to appear a warrant for your arrest will be issued.
   • Now you have surrendered the home but wind up in jail because the mortgage company refused or delayed in foreclosing on the property thereby leaving you with the maintenance responsibility.
3. If you must move from the property, don’t forget to maintain the surrendered property until you have verified the foreclosure.
4. You can verify by calling the law firm holding the foreclosure sale and request a copy of the trustee’s deed.

So the property has sold and you still have not moved.  What is next?

1. There is a process called Unlawful Detainer.  Again the process may vary state to state.
   • Generally the lender or the new owner will file an action to evict or remove you from the home.
   • This process takes anywhere from 30-60 days.
   • You want to keep in close contact with the law firm handling this action.  If the law firm receives an order to evict, the sheriff may throw your “stuff” out on the front lawn.
2. The best course of action is to either contact your attorney or the law firm handling the action and coordinate a date certain to leave the property.
3. Also contact the lender and inquire about a Cash for Keys option.
   • This is where the lender may pay you to move.

KEEP IN MIND  there is no guarantee as to a timeline for the lender to foreclose when you  surrender a home.  Once you make the decision to surrender home, begin taking steps to prepare for the move.  It is possible for that move to be a smooth process, but, it is going to take work, preparation and diligence to ensure success.

Remember, knowledge is power!  The more knowledge you have regarding the foreclosure process and surrendering your home, the more power you will have to control the move.

Photo Credit:  Rachel Lynn Foley