Your client’s statement that he is surrendering property in his bankruptcy case is nothing more than a statement of future intentions. It does not serve to transfer the property from the debtor to the secured creditor, or any one else.
I was reviewing a draft bankruptcy petition for a new lawyer where his client’s husband had just gotten a discharge in a Chapter 7 case. His schedules had elected to surrender a piece of jointly owned real estate where he was merely an accommodation party on the loan for a relative. My young friend proposed to exclude this property from the wife’s Chapter 13.
Whoa! Just because the husband announced he did not intend to attempt to keep the property, that announcement did not divest him of title. It is just a statutorily required courtesy to the secured creditor who then does not have to guess the debtor’s intentions.
Likewise, the grant of relief from stay does not take the debtor off title to the real property involved. It simply lifts the bankruptcy court injunction that that interposed itself between the debtor and the secured creditor.
This distinction between intention and a legally effective transfer is important not only for purposes of the schedules. It is worth thinking about in terms of the liability of a property owner. The debtor remains the owner until sale, foreclosure, or deed in lieu. He has exposure for injuries that occur on that property while he holds title and is well advised to maintain insurance covering public liability until the point when the property belongs to another.
Great post Cathy. We are constantly reminding people to maintain their insurance until title has passed and they have received proof of the filing. Also important to remember that title to things lurks where it may not always be. Time shares, for example, we’ve learned come in many different shapes and sizes!
I’m curious what your advice is to clients about making sure title passes in the property they wish to surrender?
My advice is that the debtor can’t control when the lender exercises its rights to the collateral, so keep it insured in the mean time. Also consider the issue of code violations and other local regulations on the maintenance of property. These legal liabilities follow ownership of the property.
I am sorry, I did not see the trick here. Why excluding the surrendered property from the wife makes difference here? If she was on the title, how can she excludes the property?
The point is that announcing an intention doesn’t change ownership. So if no event to change ownership has occurred between his filing and hers, she retains whatever rights in the property she had at the filing of her husband’s bankruptcy.
Cathy, Thank you for clearly stating what no other person or website does. That surrendering the property does NOT change ownership. What reason would the bankrupt person have for NOT signing a deed in lieu to a creditor who is not the primary lender? Thanks.
What about utilities? Can a City go after debtor for utitlities bills post filing and until formal transfer?