Are debtors bound by a surrender decision forever?
As any reputable West Palm Beach foreclosure attorney will tell you, the decisions made during a Chapter 7 bankruptcy case regarding one’s homestead can have an impact even after the case’s conclusion. That said, many bankruptcy filers are unsure of how long those decisions will hold weight.
In particular, our clients have expressed uncertainty over how surrender decisions will impact their ability to contest future foreclosure actions. To help debtors entering into Chapter 7 bankruptcy proceedings better understand how surrender decisions are treated following a discharge, we are offering insight on case law that directly addresses the issue.
In re Failla
When considering whether a surrender decision made during bankruptcy proceedings can be upheld after a bankruptcy case’s conclusion, one of the most significant cases to take into account is In re Failla. The case involved a Boca Raton couple who had defaulted on their mortgage held by Citibank. When the couple filed for Chapter 7 bankruptcy, they submitted a statement of intention to surrender the home to the bankruptcy estate. Though the estate elected not to liquidate the property during the bankruptcy proceedings, the couple’s decision to surrender the property was ultimately upheld by the Eleventh Circuit when the debtors later opposed foreclosure action taken by the bank. More than anything, this decision demonstrates that making the decision to surrender one’s property in bankruptcy proceedings should not be made lightly, as it can certainly be upheld in the future.
In re Richard and Dalain Kurzban
In the previous case, the debtors were bound by the decision made during bankruptcy proceedings to surrender their homestead, even though the case had already reached its conclusion. However, that is not to say that all debtors are bound by this decision forever. Take In re Richard and Dalain Kurzban, in which Bank of New York Mellon (BONY) sought to enlist the In re Failla decision to encourage the bankruptcy court to reopen its debtors’ Chapter 7 bankruptcy case. Similarly to In re Failla, the delinquent mortgagers detailed an intent to surrender the property which BONY held a mortgage on, and which the bank had already taken foreclosure action on, in their bankruptcy schedules. Also, like in the aforementioned case, the couple eventually received a discharge without surrounding the property. However, where these cases differ is in the events that followed the bankruptcy case’s conclusion.
Key Differences to Consider
The bank In re Failla immediately resumed the foreclosure process following the conclusion of the debtors’ bankruptcy case. It is for this reason that the bank was awarded its motion to order the debtors to withdraw their contest of the foreclosure. On the other hand, the creditor In re Richard and Dalain Kurzban did not submit a motion to reopen the bankruptcy case until more than seven years after the discharge was awarded. Aside from the extensive amount of time that had passed, the events that took place after that discharge were determined to have nullified the surrender decision. Specifically, immediately following the discharge the bank and the debtors entered into discussions to modify the loan terms. Though this ultimately did not happen, the bank still dismissed the foreclosure action two years after the discharge had been received. It is for that reason that when a second action was taken five years later, and later opposed by the debtors, that BONY’s motion to reopen the case and compel the borrowers to surrender the home was denied.
Both of these cases make clear the importance of enlisting a West Palm Beach foreclosure attorney to construct an effective defense to foreclosure actions. Even better, debtors should seek out a firm with attorneys that practice both foreclosure and bankruptcy law, like our team at Kelley Fulton Kaplan & Eller. As we hold experience in both areas, we can ensure the decisions made during bankruptcy proceedings do not come back to bite our clients. Additionally, if mortgagers are later hit with another foreclosure action and wrongly compelled to honor the decision to surrender, our attorneys can protect their rights every step of the way.
If you have been served foreclosure action, and particularly if you are considering or have already undergone Chapter 7 bankruptcy proceedings and are now facing foreclosure again, we urge you to schedule a consultation with a member of our team. Call our office to schedule yours today, at no charge and with no commitment to pursue a case with our attorneys. Together, we can develop a strategy for achieving the best possible outcome.