How to Decide What to Do with Your Property in Bankruptcy
When you’re facing overwhelming debt, bankruptcy can provide a way out. And it also means making some decisions about your finances. One of these decisions might involve surrendering property in bankruptcy.
Should you give over your car or home to your creditors? Why would anyone do this? And what are the risks?
As a Memphis bankruptcy lawyer, I understand how emotional this can be. Fortunately, it’s a myth that you have to lose your property in a bankruptcy. Instead, it’s a strategic decision between you and your lawyer.
So here’s what you need to know about surrendering property in bankruptcy, including all the pros and cons to think about.
What Does Surrendering Property Mean?
In bankruptcy, surrendering property means giving it back to the lender that holds the loan. For example, if you’re behind on car payments or a mortgage, you may choose to surrender the car or house instead of trying to keep it.
Surrendering property is an option in both Chapter 7 and Chapter 13 bankruptcies, although the process works a bit differently in each.
The Pros of Surrendering Property
Believe it, or not, there are a lot of reasons people might want to surrender their property in a bankruptcy. Depending on your situation, it can provide real benefits.
Debt Relief
For many people, bankruptcy offers the chance to downsize and find a better fit for their budget.
When you surrender property, you’re no longer responsible for making payments on it. This can provide significant financial relief and allow you to focus on rebuilding your life.
Avoiding Deficiency Balances
In bankruptcy, if you surrender property, any remaining balance after the property is sold is called a “deficiency balance.” This balance typically gets discharged in bankruptcy. And that means you won’t owe anything further on the loan.
Stopping the Stress
Let’s face it—struggling to keep up with payments can be emotionally exhausting. Surrendering property lets you move on and eliminates the anxiety of dealing with repossession or foreclosure.
There are other ways to stop repossession and foreclosure through bankruptcy as well. If you’re concerned about these issues, our Memphis bankruptcy lawyers can help talk through all your options.
Clean Slate
If the property has become a financial burden, surrendering it can help you make a fresh start. You’ll have one less bill to worry about as you work to rebuild your credit and financial health.
And if you’re worried about getting a new home or car after bankruptcy, we can help. Our popular free report called Life After Bankruptcy outlines how to rebuild your credit and assets, even and especially after surrendering property in a bankruptcy.
The Cons of Surrendering Property
For some people, the cons of surrendering property in bankruptcy outweigh the pros. As you make the decisions, there are some things you’ll want to keep in mind about your personal situation and future plans.
Losing the Asset
The biggest downside is losing something you may value, like your car or home.
If the property is essential to your daily life, this can be a tough sacrifice. For example, if you have a large family and a cramped home as it is, it might be hard to downsize.
A lot of people aren’t willing or able to part with their assets, in which case you’ll want to discuss other options with your bankruptcy attorney.
Emotional Impact
It’s hard to let go of something you’ve worked hard to own. Surrendering property can feel like a step backward, even though it’s often a necessary step toward a better future.
Generally at our firm, we’ve found people feel more relief than expected if they let go of property they can no longer afford. But there are a lot of complicated emotions involved, and it’s different for everyone.
Credit Impact
While bankruptcy already affects your credit score, surrendering property can be another hit.
However, this is usually less damaging than having the property repossessed or foreclosed upon outside of bankruptcy. If you’re at a place where you’re considering bankruptcy, your credit is probably already suffering to begin with.
Regardless of what you decide, you can absolutely rebuild your credit after bankruptcy – and we can help.
Relocation or Transportation Challenges
Obviously, if you surrender a home, you’ll need to find a new place to live. And for cars, you’ll need to figure out alternative transportation. Depending on your situation, this can take a lot of time and energy.
Is Surrendering Property the Right Choice for You?
Whether surrendering property is the right move depends on your financial goals and priorities. If you’re deeply behind on payments and the asset is more of a burden than a benefit, surrendering it could be the best way to move forward.
On the other hand, if the property is essential—like a car for commuting or a home for your family—there may be other options to explore, including the option of a repayment plan through Chapter 13 bankruptcy.
What’s best to remember is our attorneys work with your hopes and goals. We take your personal situation very seriously and don’t do anything without your sign-off and support. Plus we can help you think through options you may not have realized were available.
How Our Memphis Attorneys Can Help
Navigating bankruptcy and deciding whether to surrender property can be overwhelming, but you don’t have to go through it alone.
As a Memphis bankruptcy lawyer, I can help you evaluate your options and create a plan that protects what matters most to you.
If you’re ready to take the next step toward financial freedom, contact my office today for a free consultation. Together, we’ll find the solution that works for you.