Surrendering Property in Bankruptcy

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.


  1. 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?

  2. 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.

  3. Victoria Li says

    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.

  4. Donald Chaikin says

    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.

  5. What about utilities? Can a City go after debtor for utitlities bills post filing and until formal transfer?

  6. ok.. in a chapter 7 bankruptcy the judge advised not to affirm the debt and released property from stay.. discharged the debt almost 2 years ago.. I commenced litigation without a stay. Bank didn’t claim asset and neither did trustee.. who’s property is it? Would it not be the Occuppant

  7. Hi Cathy –

    Your blog above has been helpful – but I’m wondering if the homeowner loses beneficial title on the home if the elect to surrender the home in a chapter 7?  Would they be able to sell the house and transfer insurable title?

    Thank you –

    • I own a campground in NJ and my customer declared chapter 13 bankrupcy …she surrendered her trailer as collateral to us…How do we obtanin the title to the trailer?

  8. The debtor’s intention with respect to property is not a conveyance.  The filing of the case may transfer the property to the trustee in bankruptcy, but on abandonment, it returns to the debtor.

    The fact that neither the statement of intentions nor relief from stay relieves the debtor of ownership and responsibility for property has been front and center in one of my cases where the debtor’s rental property, slated for surrender, was in violation of city codes.  As record owner, the debtor was apparently responsible, and it took an adversary proceeding against the lender who had relief from stay to accelerate the foreclosure.

  9. Karen_hineman says

    So how do you transfer title of a debt that you (as the co-debtor) are now alone responsible for payment, where as the second party discharged their debt in bankruptcy. The property has been abandoned back to the debtor, and the debtor refuses to sign a transfer of title, but as the co-debtor I am alone responsible for paying the mortgage on the property in full.  Where is the relief for the co-debtor in bankruptcy?

  10. Hi Cathy,

    I just wanted to know if someone should file Chapter 7 Bankruptcy before or after surrendering their “underwater” property (one with value < $ amount owed); or does it matter.

    The reason I ask is because I want to surrender my home, start fresh, & not have to worry about the "Non-Exempt" $ amount still owed.

    I am afraid that if I file Chapter 7 before I surrender the house, I will NOT be able to discharge the balance. Is this true? HOWEVER, a BK attorney told me this wasn't true. Now I don't know if he was just trying to convince me to file or if he was being honest.

  11. Bandrmartin says

    We owned a rental property that we surrendered in chapter 7 bankruptcy that was discharged in August of ’08.  There was a relief from stay granted  and the creditor even changed the locks on the house.  Our lawyer advised us to cancel insurance.  About that time that particular creditor went under and the property sat untouched until July of ’10 when another creditor assumed the mortgage.  Unknown to us the deed was never taken out of our name.  Now we are trying to buy a house and it has to be three years from foreclosure to get approved so we are not sure what date the underwriter wants to see???  Any ideas??

  12. I filed for Bankruptcy in January of 2011 and kept my homeowners insurance and HOA current. It has been close to 3 years since I filed. I was already discharged. However, being new to all of this I just dropped the insurance on the home because I thought the bank had taken it over. To my surprise it is still in my name today and there was a pipe that broke and demolished my former house and the two neighboring townhomes. I have NO money because I filed for bankruptcy. What is the worst case scenario? HOA can fix the home for the most part, but I don’t know what will happen to me.