Continuing Responsibilities of Homeowners Surrendering Property in Bankruptcy
A chapter 7 Statement of Intention or chapter 13 Plan may provide that a debtor’s homestead or other real property will be surrendered. The bankruptcy court may enter an order abandoning the property or granting relief from the automatic stay regarding the property. The bankruptcy court may enter a discharge order and a final decree closing the bankruptcy case. None of those things mean that the debtor automatically stops being the owner.
The debtor does stop being the owner until the sheriff sells the property, the state foreclosure court enters an order confirming the sale, and the sheriff executes and delivers a sheriff’s deed to the buyer. Those things do not always happen right away, and sometimes they take years or even never happen at all. The bankruptcy does not itself accomplish those things.
Continued ownership can have consequences. If the building becomes dilapidated or the grounds become overgrown, the city might fine the debtor. If a mailman, neighbor, vagrant, etc. is injured on the property, the debtor might be sued. If there is a homeowners’ association, the debtor is responsible for all fresh dues that accrue after his bankruptcy is filed, even after he moves out, until he ceases to be the owner.
In view of these considerations, many debtors decide to continue residing in their homes until they cease being the owner, allowing them to continue insurance coverage (or at least liability coverage) and to monitor and maintain the physical condition of the property.
A bonus benefit of that decision is that the rent is free.