by: Tracy L. Hirsch, Attorney

One of the hardest decisions a family has to make is deciding to surrender their home in a bankruptcy proceeding. Often times, this means allowing a home to go through the foreclosure process and discharging their mortgage obligations in a Chapter 7 bankruptcy. Many homeowners are concerned about the foreclosure process and their obligations to their mortgage company once their bankruptcy process is complete.

Often times, when a person chooses to surrender their home in bankruptcy, he is in the middle of the foreclosure process. Filing a bankruptcy petition creates an automatic stay, which puts an immediate halt to the foreclosure process. The mortgage company may then choose to either file a motion with the court to re-start the foreclosure process (called a motion to terminate the automatic stay) during the 90 days of the Chapter 7 process or wait until the Chapter 7 is discharged to initiate the process again. Either way, foreclosure is a long, legal process and it often takes anywhere from four to eight months for the house to be sold at the foreclosure sale. Regardless of when the bankruptcy is complete, the home still belongs to the homeowner until the home is sold at the commissioner’s sale.

It is generally to the homeowner’s advantage to remain in their home until the home is sold for two reasons:
1- the debtor has the ability to live “rent free” for a significant period of time and save money for moving expenses, etc.
2- generally a homeowner is still responsible for upkeep and maintenance on the property (cutting the grass, etc) until it is re-sold, so it is easier to remain in the property to ensure that regular lawn maintenance is done, and avoid citations from the city.

Once the debtors receive their discharge at the conclusion of the bankruptcy case, their personal liability on the mortgage debt is eliminated. However, the property still legally belongs to them until the foreclosure sale is complete and a new purchaser has taken title as a result of a commissioner’s sale.

If you do choose to remain in the property after the foreclosure has begun, which you have a legal right to do right up until the commissioner’s sale has concluded, it is important that you pay your homeowners insurance to ensure that your belongings are properly insured. If your insurance is in escrow, you will want to contact your insurance company directly to find out how far in advance the mortgage company has paid the premiums. In addition, if you live in a condominium or a neighborhood that has homeowners dues, many of these associations will expect for you to pay any association dues that were due after the filing of your bankruptcy case if you were living in the home and taking advantage of the benefits of the association, such as trash disposal, utilities, or use of a pool or workout facility.

If you have questions about your rights and responsibilities during and after a foreclosure proceedings has begun, consult with a competent legal adviser.

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