Surrender of Property in chap 7 Bankruptcy May Preclude Defending the Foreclosure Case.

The Southern District of Florida Bankruptcy Court recently ruled that your stated intention with real property filed in the bankruptcy case could preclude homeowners from defending their foreclosures in state court.  Typically in bankruptcy, one must say what they intent to do with the property- reaffirm the debt and try to keep it or surrender the property back to the creditor and be discharged of the money liability to the lender; although there is no transfer of the property right then an there but merely a notice of intention to.   The Southern Distrcit has ruled that this intention is in essence an admission and bars defending or delaying the underlying foreclosure case in state court.

The case is up on appeal in federal court with the appeal filed in March 2015 (9:15-cv-80328).  It is not expected to be resolved anytime soon.  But be aware that if you filed a prior Chapter 7 and received a discharge of the liability to the lender, you may have waived your right to defend the foreclosure.  The Court has said that if you fail to voluntarily turn the property back over to the lender, then your who bankruptcy discharge may be at risk, or you may have committed fraud in federal court; neither good results.

In re Pailla, Southern District of Florida Bankruptcy Court, 11-34324. Lexis #0615-136.

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