What does the term “surrender” mean in bankruptcy law?

Surrendering property in bankruptcy involves secured loans, which are loans that are guaranteed by a piece of property, such as a house or car. This means, if you do not make your loan payments, the bank can take the property through repossession or foreclosure. An example of a secured loan is a mortgage. The house guarantees (or secures) the loan and the bank can foreclose on it if the mortgage is not paid.

Reasons Individuals Surrender Property in Bankruptcy

Generally, when you file for bankruptcy, you can either keep the property that secures a loan and work out a payment plan with the bank or you can surrender the property. People typically surrender property when they can no longer make loan payments. For instance, if you file for bankruptcy and determine that you cannot afford to enter into a payment plan for one of your car loans, you can give the car to the bank so you do not have to make any more loan payments. 

Process for Surrendering Property in Bankruptcy

Surrendering property is a multi-step process. It usually begins with notifying the bank of your intention to surrender the property by stating so in a bankruptcy filing. However, you are not absolved from taking care of the property simply because you declare in the bankruptcy paperwork that you plan to give it up. The property will continue to be your responsibility until you legally transfer it, either through foreclosure or by signing over the deed or title to the bank. 

Surrender Property or Foreclosure?

Surrendering property through bankruptcy may be better than going through a foreclosure because it stops all of the stressful legal wrangling that is often part of a foreclosure proceeding. It also allows you to avoid a deficiency judgment, which is a court order requiring you to pay the difference between what the property is sold for in foreclosure and what you owe on the loan. By surrendering the property in bankruptcy, the loan is simply discharged.

Consult an Attorney

If you plan to file for bankruptcy, contact a bankruptcy attorney in your jurisdiction for help. An attorney can help you navigate through the process and offer advice or information about alternatives to filing for bankruptcy.