(888) Debt-Line Blog

There is this common misconception with regard to bankruptcy that, upon filing bankruptcy, there will be someone sent to your home to catalogue all of your belongings and report back to the Trustee their findings.  This is not how it works at all.  On the contrary, when you fill out your schedules you are charged with disclosing all your assets and all your creditors under penalty of perjury.  In lay-man’s terms you are required to swear that you have listed everything—and I mean everything—that you own and everyone—and I mean everyone—that you owe money to on your schedules.

Nobody else but you knows exactly what belongings you have.  Even if you tell your attorney that you have this item or that item, it is ultimately your responsibility to read over the schedules once prepared by your attorney to make sure they are complete and accurately reflect your assets and creditors.  This is the whole reason trustees ask at the 341 Meeting of the Creditors if the debtors read and understood the documents filed in their case and whether or not they signed them.

Make no mistake, however, that trustees have ways of determining your property beyond what you report.  Take your tax returns for instance.  If there is rent income listed on your taxes this raises the question to the trustee just what property you might have that would bring in rent income.  They can also look at your list of creditors.  If you have listed some Jewelry store’s credit card on your list of creditors the trustee may be curious as to whether all jewelry that you have is listed in your assets list.

The moral of the story is that there is not someone that is hired to go out and monitor you to see what kind of car you are driving.  If you own the car it should be listed.  There won’t be someone knocking on your door asking you to open up your storage unit so he can take an inventory; you should have done that inventory and listed your assets.  This is actually a very efficient way to handle bankruptcy cases because I like to think that, for the most part, people are honest.  And if they are not, there is plenty of incentive to be given that the penalties for perjury can vary from denial of your discharge (never to be able to file on those particular debts again) to criminal charges and fines.  So don’t try to put one past the trustee or the bankruptcy court when filling out your schedules because it is your signature that goes on the bottom.

Many people are turning to bankruptcy these days. Many of these people have been driven to it due to the fact that they can no longer make the payment on their mortgage.

Many have come to me seeking to keep a home that they probably should have never bought in the first place.  Yet others turn to bankruptcy because a payment that they could make before has become too cumbersome to continue making now.  Many of these come with the expectation that bankruptcy will somehow save their homes without them having to continue making the payment that they can no longer make.

Unfortunately, there is no power under the bankruptcy law to force a bank to modify a home loan to make it possible for someone to keep their home without them having to keep making the payment.   Even though a Chapter 13 bankruptcy would allow you to make up the arrearages over a 3 to 5 year period, you still have to continue making the monthly payment.  For some, that is just not a possibility

The sad truth is that many of those in this situation will need to surrender their home to the bank.  The good news is that the deficiency debt then becomes unsecured and is therefore dischargeable in bankruptcy.

Now here is where pitfall #1 comes in.  Under the bankruptcy code, the debtor is required to exercise their intentions for their secured property within a certain amount of time after the first meeting of the creditors.  You would think that by virtue of your surrendering the home, the bank taking the home would automatically take the liability for that property.  NOT SO.  You are still liable for the upkeep and maintenance of the property until the foreclosure is done and filed in the land records.  This means that property taxes, and any yard work that the city has to do to maintain the property is on you.

Because of this, some bankruptcy attorneys tell their clients just to stay in the house until the foreclosure is done and recorded.  This has worked out well for some people allowing them to stay in the house rent-free for months if not years as the bank decides what to do with the property.

On the other hand, some banks/mortgage companies are a little quicker on the draw which brings me to pitfall #2.  I had a recent case where the client came to me because of a foreclosure.   He decided that he wanted surrender the house and asked me how much time he would have to make other arrangements.  I told him it depended on how aggressive the foreclosing company was and how far into the foreclosure process they were.  Based on the fact that his was so far into the process, I told him that it could be anywhere from a week to a month before he had to get out.  Sure enough he received a notice that the sheriff would be kicking him out on schedule in a week.  I was able to buy him another week but, the process was so far along that the automatic stay of the bankruptcy could not buy him any time –although it should have but that is the subject for another post–.  

One trick to remember is that, if you are going to surrender your home in a bankruptcy and want some time to make other arrangements, filing your bankruptcy earlier in the process may buy you some time, but if you wait too long it cannot do anything for you.

So the moral of my post is that, when it comes to surrendering your house in a bankruptcy, you need to take into account that the property could sit there untouched for a while and cost you money so you might as well live in it as long as you can until they kick you out.  But don’t get too comfortable because the bank could, on the other hand, finish up the process quickly.  You want to be ready for either situation.