Many people who file bankruptcy have property with a lien on it, such as a mortgage or car finance loan. If they don’t pay the secured loan, the property can be repossessed or foreclosed. Bankruptcy provides the opportunity for people to give up property with a lien so that they won’t have to make the payments any longer. In the bankruptcy schedules, they tell they court and creditors whether or not they want to keep the secured property.
Many people initially believe that they no longer own property if they decide to surrender the property in a bankruptcy. However, even moving out of a home after expressing a desire to surrender it in a bankruptcy doesn’t mean that the home is actually surrendered. That’s because the property isn’t automatically transferred to the mortgage company without further action being taken.
What must be done? Many mortgage companies will still go through the foreclosure process in order to reclaim the home after a bankruptcy is over or during a bankruptcy if they get permission from the court. However, debtors do have the option to sign a deed transferring the property to the mortgage company. This is called a deed in lieu of foreclosure. This is the better option for debtors who have already moved out of the own so that they will no longer be responsible for maintaining the property.