Why You Need the Bank to Take Your Home if You Don’t Want it After Bankruptcy
If you are in foreclosure and you file for bankruptcy, you may not want to keep your home (or other property, such as investment property, or a second home). But filing for bankruptcy may not solve all your problems if you aren’t also dealing with the foreclosure. When banks take forever to foreclose on your home, it can cause significant problems with your bankruptcy discharge.
Why Give Up Your Home?
There are many reasons why people in bankruptcy and foreclosure may not want to keep their home. Maybe the mortgage they took out is more than they can afford and they want to get out from under the payments. Maybe they are looking to downsize. Maybe their loan carries an exorbitantly high interest rate.
The important thing to remember is that surrendering your home to the bank in your property does not automatically transfer title to the bank. The bankruptcy court does not have the power to enter an order foreclosing on your home; only a state court can do that.
The Problem with Keeping Title to Your Home After Discharge
Here is where the problem comes: When your bankruptcy is entered, and all or most of your debts have been discharged, if the home is still legally in your name, obligations that arise after the discharge could be viable debts that you owe—that is, debts that were not discharged in your bankruptcy.
For example, if you get your discharge in September 2020, and then a homeowners’ association payment becomes due in October 2020, and there is a municipal penalty for a code violation in November 2020, and then next years’ property taxes become due – those are all financial debts that arose after the discharge. They weren’t wiped out in your bankruptcy. They’re all valid.
Surprise—just months after getting your bankruptcy discharge, you now owe money again, all because the bank did not take your home even though you were ready willing and able to surrender it. Even worse, you now have credit obligations on your credit report. Your credit is now going the wrong way.
How to Get the Bank to Take the Property
It is easier to deal with this situation if there is an active foreclosure case pending against you. If there is an active foreclosure case, all you need to do (preferably through a lawyer) is file paperwork withdrawing any defenses you have to the foreclosure and asking the court to enter the judgment and put the home up for sale.
If there is no pending foreclosure lawsuit, you will need to act fast to get the bank to take the property through the process of negotiation. Usually they will work with you—after all, the mortgage loan was discharged, and you are not paying the bank anymore. Still, time is of the essence—make sure you have a plan as to how you will get the bank to take your home, if you opt to give it up in the bankruptcy.