Surrendering your home is an option if you plan to file for Chapter 7 bankruptcy. There are various reasons and benefits for taking this action. Before you make a decision as to whether or not surrendering your home is best for you, consider the following.
What Is Surrendering Your Home?
The loan that you have from your mortgage lender is considered to be secured debt. This basically means that your lender has a lien against the home until you have completely paid off your mortgage loan. If you fail to meet your financial obligation to the lender, your home can be foreclosed.
In a Chapter 7 bankruptcy, you have the option of keeping or surrendering property that is attached to a secured debt. When you surrender, you basically turn the home back over to your lender.
Why Should You Surrender Your Home?
Depending on the circumstances of your bankruptcy, it is unlikely that your bankruptcy trustee will force you to give up your home. If you want to keep it, state and federal exemptions will probably cover the value of the home which would allow you to hang onto it.
However, there are some good reasons to surrender your home. If you cannot afford to continue to pay the payments on your loan, you can walk away now. If you opt to keep the home and cannot still afford the payments, you could find yourself financially drowning again in the future.
Another reason to surrender your home is the value of it. If the value of your home is far less than the mortgage, you can save money by giving it back to the lender.
The best reason to walk away from your home is that you simply do not want it. Whether you are tired of repairs or no longer wish to be a homeowner, you can give it up without explanation. In this instance, the lender can sell the home or your trustee can sell it and use it to help pay off your debts.
What Happens to the Deficiency Balance?
If you surrender the home to the lender and it is sold in a foreclosure sale, there is a good probability that the amount that is gained from the sale will not be near what you still owe on the debt. However, this is legally no longer your concern. In a Chapter 7 bankruptcy, debts are discharged. If you surrender early enough in the process, your balanced owed on the loan after sale, or deficiency balance, can be discharged.
The idea of filing for bankruptcy is to start off with a clean slate. Surrendering your home might be a necessary step you have to take to start over. Talk to your bankruptcy attorney, one like Bill Bodensteiner Attorney At Law, for recommendations about your home and other assets involved in the process.Share