Kentucky Bankruptcy Law

Counsel with Care

“I’ve Changed My Mind – I Want to Surrender My House”: What Effect Does Post-Confirmation Surrender Have on the Debtor’s Discharge?

The debtor’s attorney needs to take the time to discuss the probability of maintaining house and other secure debt payments over the course of the Chapter 13 – 3 or 5 years. A vehicle that may not survive the life of the bankruptcy but with significant debt may need to be surrendered at the outset.

Changing one’s mind about surrendering a house within a confirmed Chapter 13 could be a huge issue unless the debtor was eligible for a Chapter 7 at the inception of the Chapter 13. If they were eligible, but chose a 13 for other reasons, then the best practice would be to convert to a Chapter 7 and surrender the house in that bankruptcy.

Chapter 13 Trustee, EDKY: Trustee's Blog

If a confirmed plan provides that the debtors will cure arrearages through the plan and maintain ongoing payments on a mortgage or long-term car loan, and the debtors complete plan payments and get a discharge, those section 1322(b)(5) debts are not discharged per section 1328(a)(1).  The debtors still have personal liability on those debts after discharge, just as if the debtors signed reaffirmation agreements in chapter 7 cases.

But what happens if after confirmation the debtors change their mind – they can’t afford the house or the car, and they let the creditor get relief from stay.  Is the claim still a 1322(b)(5) claim that is excepted from discharge?

Even if a creditor gets relief from stay on a 1322(b)(5) claim after confirmation, the creditor’s claim remains a 1322(b)(5) claim according to In re Holman, 2013 WL 1100705 (Bankr. E.D. Ky. 2013).  Taken to its logical conclusion, any resulting…

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October 24, 2016 - Posted by | Uncategorized

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