Surrendering home after filing CH13

[SANDY075]

I'm not sure if anyone have done this. I just want to know if let's say 2 years after filing CH13 the debtor decided to just go ahead and surrender the house. What usually happens in situation like this? Does the case get converted to CH7 or the CH13 case gets dismissed? What could possibly the outcome? I'm trying to help my niece on this kind of situation... Thanks

[justbroke]

Let's just forget about the Chapter 7 conversion, as that's a totally separate issue from "surrendering" a home post confirmation.

The key phrase here is going to be post confirmation. Technically, you can't change the way your plan deals with a secured creditor, once the plan is confirmed. The issue becomes that a secured creditor has certain rights at that point.

The key is that after you surrender the home, post confirmation, many debtors attempt to reclassify the creditor's allowed secured claim as an unsecured claim (for the deficiency). Many Courts have concluded that you cannot reclassify an allowed secured claim into an unsecured claim.

So now you're asking, so what's the real issue Justbroke?

The issue is that the lender (with their allowed secured claim) will seek administrative priority status. This means that you would have to pay the deficiency inside the plan and you would need to payoff the entire deficiency in order to receive a discharge. The deficiency comes from the difference between what your balance is on the allowed secured claim, and what the creditor receives upon foreclosure (or sale) or the property. This can be a huge issue if you're underwater on your first and you end up with a $100K deficiency with only 3 years left of your plan! This could add a $2,777/month ADDITION to your plan payments. (Of course, this is offset by not paying the mortgage and other home ownership related items (taxes, insurance, etc).)

This is the majority view at this time.