Debtor’s Obligations After Property Is Surrendered

When a debtor files for bankruptcy, he or she may want to surrender certain property that is subject to a lien back to the lender. For example, the debtor may want to surrender a car that is only worth $2,000 but has a lien of $10,000 back to the car lender. Another common example is when the debtor does not want to keep a house worth $100,000 that has mortgage liens that total more than $200,000. In a Chapter 7 case, the debtor indicates his or her intention to surrender in a separate form entitled “Statement of Intent.” In a Chapter 13 case, the debtor indicates his or her intention in the Chapter 13 Plan. The Chapter 13 trustee may also require that the debtor provide him or her with evidence of the surrender of the collateral.

Unfortunately, even after the lender is notified of the debtor’s intent to surrender the property, the lender in these circumstances is generally not obligated to repossess or foreclose on their collateral. The personal obligation of the debtor for the debt is discharged, but until the title changes or the car is repossessed, the debtor is still the owner of the property. In the case of a car, if the car is not picked up by the lender then as long as there are tags on the car, the debtor must keep the car insured. In the case of a house, the debtor should still maintain hazard insurance until the property is sold or at least until the date of a foreclosure sale. The debtor will also be required to maintain the property, such as cutting the grass, until it is sold. In addition, if the property is subject to condominium or homeowner association fees, after the filing of the bankruptcy case the debtor will need to pay these fees on a monthly basis until the property is sold.

Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.