How to Surrender Rental Property in a Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as a "liquidation" bankruptcy. A debtor's non-exempt assets are surrendered via the bankruptcy proceeding and then sold by a trustee to pay off any creditors. Often a debtor will surrender a house or car in a Chapter 7 bankruptcy proceeding to avoid tax and deficiency penalties. A Chapter 7 bankruptcy allows a debtor to surrender assets without having to worry about any outstanding debts owed to a creditor for the property.
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Instructions
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Gather copies of your registered deed and mortgage for your rental property. These documents will usually have an official seal or bar code on the first page of the document. If your copies do not, you will need to obtain registered copies of these documents at your local Register of Deeds.
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Visit a bankruptcy attorney, who will put together your Chapter 7 bankruptcy petition. You will need copies of all your titles, paychecks, bank statements, bill statements and mortgage information for any property you own. A bankruptcy attorney can also discuss any penalties your state may have for surrendering property and your state's process for giving up a rental property.
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Mark your intention to surrender the rental property in your bankruptcy petition by checking the "surrender property" box. This will notify your mortgage lender that you intend to give back the property and allows the lender to decide how to proceed. Your lender may try to negotiate a loan modification, but this should be discussed in detail with your bankruptcy attorney prior to signing any loan modification agreement.
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Allow the bankruptcy case to proceed into foreclosure on the rental property. A lender may file a "Motion to Lift Automatic Stay." If granted by the bankruptcy court, this motion will allow your lender to foreclose on your property before the bankruptcy is over. If the motion is not entered or granted by the judge, your lender must wait until your Chapter 7 bankruptcy discharge to start foreclosure proceedings on the rental property.
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