Surrendering Secured Property in Chapter 7 Bankruptcy

You can return property to the lender and discharge the secured debt in Chapter 7 bankruptcy.

If you’ve put up your car, home, or another type of property as collateral, you must either pay the debt or give the property back. You’ll tell the lender and the court whether you’re keeping or surrendering the property in the Statement of Intention for Individuals Filing Under Chapter 7 form. The form must be filed within 30 days of the petition date or by 341(a) meeting of creditors hearing if the court sets it sooner than 30 days.

Find out more about the official bankruptcy forms.

What “Surrendering Property” Means

If you have secured debt, you can choose one of three options. You can either surrender, redeem, or reaffirm the collateralized property. You can redeem (pay the value in a lump sum) or reaffirm (enter into a new contract for the property) if you’d like to keep it. If you no longer want the property, you’ll surrender it. When you surrender property, you give it back to the creditor.

Surrendering secured property in Chapter 7 is merely giving the property back to the lender voluntarily. You won’t be responsible for any deficiency amount you still owe on the property after the creditor sells it.

What Is Secured Property?

Secured property is any property used as collateral for a loan or debt. If you stop paying the loan, the creditor can take the property and sell it to pay down the balance. Some examples of secured property include a mortgaged home and financed vehicles. Financed electronics, household appliances, and jewelry are also commonly contractually secured.

Learn about secured, unsecured, and priority debt in bankruptcy.

Why Creditors Like Secure Debt

Having a secured debt gives the debtor two avenues for payment. The lender gets to hold you personally liable for the entire debt amount. Plus, if you don’t pay, the lender can sell the collateral and use the proceeds to pay down the balance owed. If the sales proceeds aren’t enough to pay the debt, you’re still responsible for paying the remaining balance called a “deficiency.” Learn about anti-deficiency laws.

If you get a Chapter 7 discharge, your liability, as well as any deficiency, get wiped out. However, the secured creditor still has the right to the collateral. You don’t get to keep it. But, the lender can’t go after you for any unpaid balance that might remain after selling the property.

When It Makes Sense to Surrender Property

Most people surrender property because they can’t afford it or they don’t want to pay for it any longer. Also, it might not be worth keeping if it's worth far less than what’s owed. Or you could prefer to protect other property using your bankruptcy exemptions. If you’re not sure what you should do, take a look at the list of pros and cons below.

Pros

  • Get rid of property you can’t afford or don’t want any longer.
  • If it isn’t worth the creditor’s time or money to pick up your property, you get to keep it debt-free.

Cons

  • You lose your property.
  • You might not be able to purchase replacement property on credit for a while.

Find out about other options in Redeeming v. Reaffirming Debt to Keep Property in Bankruptcy.

How to Surrender Secured Property

To surrender your secured property, you’ll indicate your choice on the Statement of Intention for Individuals Filing Under Chapter 7 form. You’ll find a downloadable, fillable form on the U.S. Court bankruptcy form webpage.

You’ll file a copy 30 days after your bankruptcy petition, or by the date set for the 341 meeting of creditors, whichever occurs first. Most people find it simpler to file it along with the bankruptcy petition—that way, the court will send it to your creditors and the bankruptcy trustee. Otherwise, you’ll be responsible for doing so.

Until the creditor picks up or reclaims the property, you’ll still be responsible for taking care of it. However, if the creditor fails to take control of the property, it will be deemed abandoned, and you can keep it debt-free.

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