Continuing Responsibilities of Homeowners Surrendering Property in Bankruptcy

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.

Effect of Closing of Bankruptcy Case

Effect of Closing of Bankruptcy Case

When a bankruptcy case is finished, the court enters a Final Decree stating that the case is closed. In the U.S. Bankruptcy Court for the Northern District of Oklahoma, the Final Decree is not a document; it is just words on the court’s docket sheet.

After the case is closed, nothing more will happen in the case. It is officially ended.

That order is different from the “discharge” order that the debtor received earlier, which stated that his dischargeable debts were discharged (wiped out).

The closing of the case means that the trustee has finished his work in the case. In bankruptcy jargon, the case has been “fully administered.” 11 U.S.C. Section 350. If the trustee sold any of the debtor’s assets, then he filed a report explaining how he distributed the money, and the court approved the report. If he did not sell any assets, then he filed a “no-asset” report.

Unless the court orders otherwise, the closing of the case causes all assets that the debtor listed on his bankruptcy schedules to revert to being owned by the debtor, even if those assets were not scheduled as “exempt”. 11 U.S.C. Section 554(c). For example, if the debtor owned an old boat and listed it on the schedules and the trustee did not sell it even though he had a right to do so, then the debtor now owns it again and is free to do with it as he pleases.

Very occasionally, bankruptcy cases have to be “reopened”.  Bankruptcy Rule 5010. The most common reason for reopening is that the debtor failed to list an asset in the bankruptcy schedules. The most common asset that a debtor omits is real estate that someone (usually parents) had deeded into the debtor’s name before the bankruptcy was filed without telling the debtor.

If the debtor later discovers a debt that he forgot to list in his bankruptcy schedules, that does not mean that his bankruptcy case will be reopened. If he discover such a debt, he should immediately contact his attorney to discuss what needs to be done. In some situations, he will be stuck with the omitted debt. In most situations, he will not be, although he might need some minor legal services to convince the creditor.