Friday, August 7, 2015

Surrendering Property in Bankruptcy

One of the most common issues a bankruptcy debtor must decide early on in their case is whether or not to try and keep a piece of property or to surrender that property back to the creditor in satisfaction of the debt.  There can be a myriad of reasons why a debtor chooses to surrender a piece of property in their bankruptcy case but a recent opinion by Judge Williamson in the Middle District of Florida makes the surrender decision even more important.  That is because in In re Metzler Judge Williamson held that when a debtor surrenders a piece of property during bankruptcy they are barred from taking any actions to defend or stop the foreclosure proceeding in the state court. In re Metzler, 530 B.R. 894, 900 (Bankr. M.D. Fla. 2015).
            This is a very important development in the Middle District of Florida.  Now, when a debtor is considering the surrender of real property they must be committed to their ultimate decision because there is no going back.  Under Metzler, debtors in the Middle District of Florida cannot take any “overt actions”, i.e. defending a foreclosure case, that would prevent the secured creditor from foreclosing on the property and transferring title.
             The Metzler opinion actually involved two bankruptcy cases, one a Chapter 7 and the other a Chapter 13.  A Chapter 7 debtor has three options regarding their secured property: redeem the property, reaffirm the debt the property secures, or surrender the property.  Under Bankruptcy Code § 521 all Chapter 7 debtors are required to file a statement of intent within 30 days of filing the case which tells the court which option the debtor has chosen.  Chapter 13 debtors are not required to file a statement of intent but instead are required to file a plan of reorganization which indicates how the debtor proposes to treat the secured property.  Bankruptcy Code § 1325 gives the Chapter 13 debtors three options for treating the secured debt: gain the secured creditor’s consent to the plan, cram down the plan treatment over the secured creditor’s objection, or surrender the property.
            Both debtors in Metzler took explicit acts to prevent the respective secured creditors from foreclosing their mortgages by actively defending the foreclosure cases after stating their intent to surrender the properties during bankruptcy.  Metzler argued that surrender in bankruptcy actually just dissolved the automatic stay but did not have any effect on her state law rights.  But the court held differently when it stated that “Surrender means something.  In the context of Bankruptcy Code §§ 521 and 1325, the Court concludes the term means that a bankruptcy debtor must relinquish secured property and make it available to the secured creditor by refraining from taking any overt act that impedes a secured creditor’s ability to foreclose its interest in the secured property.” In re Metzler, 530 B.R. 894, 900 (Bankr. M.D. Fla. 2015).  In light of this decision, all potential Chapter 7 and Chapter 13 debtors need to be 100% positive regarding their decision to surrender a piece of property before informing the court of their intent.  All prospective debtors should create a plan of intent for each secured debt and corresponding asset with their bankruptcy counsel before filing their case.

By:  Joshua B. Dawes, Attorney at The Law Offices of Jason A. Burgess, LLC

If you have questions about this or anything else please give us a call at 904-354-5065 or email us at 

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