Surrendering Your House in Bankruptcy
Surrendering your house during bankruptcy is a simple process. You just stop making your payments. Then, eventually, after several months, your house will be taken back by your mortgage lender.
The mortgage company takes back your house through the foreclosure process. The mortgage company will file a foreclosure complaint with your local court after your house gets sufficiently behind on payments. This foreclosure complaint starts the foreclosure process. After 3 to 5 more months, the court will usually enter a judgment in the foreclosure. Eventually, a date will be set for a sheriff sale. At the sheriff sale, your home will change hands: the house will no longer be in your name anymore. It will either be sold back to the mortgage company or a third party will step in and buy the house.
You generally should stay in your home during the entire foreclosure process. After you stop paying, you will usually be able to stay in your home for 8 to 10 months, sometimes even much longer. At the very end of the process, a sheriff sale date will be set about 40-60 days in advance. You will need to be completely moved out of your house by the date of the sheriff sale.
By staying in your home during the foreclosure process, you are essentially living in your house “for free” during that time if you have already filed or plan to file in the future for Chapter 7 bankruptcy. This can further help you recover financially. You will still need to pay utilities, maintain the home to some degree, and mow the grass. Mortgage companies generally prefer that you live in the home up to the date of the sheriff sale. By staying in the home, the house will be more secure, better maintained usually, and there is no fear of pipes bursting or other similar matters that can occur in a vacant home.
If you move out of your home early, you should probably be mindful of a few things. First, as always, you are required to maintain insurance on your home. You must also keep the place as secure as possible. Remember, you still technically own the home until the date of a sheriff sale. Because of this reason, you could be liable in the unlikely event of someone being injured on the property. Most mortgage companies automatically pay for insurance on homes through escrow. Still, it is wise to make sure the property stays insured until the sheriff sale, especially if you have paid for insurance directly in the past.
When you move out early, it is also a good idea to contact the mortgage company to secure and winterize the property. Inform the mortgage company that you will be moving out and the property will soon be vacant. Make arrangements so that there is no point where the home will be exposed to the elements unless it has already been fully winterized. Remember, also you may need to continue to mow the lawn if you live in within city (or town) limits unless the mortgage company starts doing that for you.