In a hot topic issue, previously discussed here here and here, on whether a debtor in bankruptcy who elects to surrender a property can defend the foreclosure case (give it back to the bank) after receiving discharge of the debt in bankruptcy (wiping out personal liability on the mortgage loan), there were many decisions spanning state courts and bankruptcy courts in Florida. These varied from extreme ends of the spectrum from definitely yes to definitely no and everywhere in between.
A federal court has now weighed in. The 11th Circuit Court of Appeals, which covers Florida, Georgia, and Alabama, and reviews cases of federal matters, recently held that a debtor who surrenders their property in bankruptcy CANNOT defend the foreclosure case thereafter. Failla v. CitiBank, N.A., case no. 15-15626 (11th Cir. October 4, 2016).
The Court analyzed the plain language of the statute, 11 U.S.C. § 521(a)(2), stated that a chapter 7 debtor must (1) “file a statement of intention about what he plans to do with the collateral for his debts,” and (2) “perform the option he declared.” Failla, at *5. The Court then moved to the primary issue on appeal: if a debtor elects to surrender collateral, to whom must he surrender the property. Id. at *6. The Court held that “section 521(a)(2) requires debtors who file a statement of intent to surrender to surrender the property both to the trustee and to the creditor.” Id. “Even if the trustee abandons the property, debtors’ duty to surrender the property to the creditor remains.” Id.
The Court agreed with the bankruptcy courts and lower federal courts that the duty to surrender “requires debtors to drop their opposition to a foreclosure action” and that is what the term “surrender” implied in the bankruptcy code.
The Court also said that Florida law requires a foreclosure case to determine issues of priority between multiple lienholders and rights to surplus sale proceeds, not to allow a debtor to contest the proceeding.
The Court also found that the debtors could in fact be SANCTIONED for defending the foreclosure case in bankruptcy court. The Court stated that “[a] debtor who promises to surrender property in bankruptcy court and then, once his debts are discharged, breaks that promise by opposing a foreclosure action in state court has abused the bankruptcy process.”
Again, please note that if you SURRENDERED a property in your bankruptcy schedules (documents) that you CANNOT defend the foreclosure case thereafter.
This is why our firm HIGHLY suggests saving bankruptcy, especially Chapter 7 where one would have to surrender a property in exchange for a discharge of the mortgage debt, as a last resort option while in foreclosure to prevent the auction/sale of a property.