Should You Surrender Your Property in Chapter 7 Bankruptcy?

 Posted on May 02, 2025 in Bankruptcy

If you are filing for bankruptcy, you are doing so in all likelihood because you have a great deal of debt and need a financial fresh start. You may also be concerned that your financial troubles could cause you to lose your car or home. Indeed, many people turn to bankruptcy to keep these assets. So it may surprise you to hear that there are situations in which it might make sense to give up an asset or surrender it in bankruptcy. When does it make sense to give up your car or home in bankruptcy? This is a complex question that is very dependent on your particular circumstances, but an experienced Charlotte, NC Chapter 7 bankruptcy attorney can advise you on whether surrendering certain assets in bankruptcy is the right decision for you.

What Happens to Your Secured Versus Unsecured Debt in Chapter 7?

Chapter 7 bankruptcy treats secured and unsecured debt very differently. Unsecured debt, like your credit card or medical debt, is usually discharged or erased in bankruptcy. Secured debt refers to debt on property that is secured by collateral–the asset itself. This includes things such as car loans, mortgages, and loans on various appliances. With secured debt, you are liable for both the loan and the lien that attaches to the property. In bankruptcy, your liability for the debt is discharged, but the creditor can still recover on the lien. That means that you must continue to pay for that debt or risk losing the asset, even in bankruptcy.

Should You Surrender Your Property in Bankruptcy?

When you surrender property in bankruptcy, the secured debt turns into unsecured debt. You return the asset to the creditor, who will sell it, applying the proceeds towards the payment of the loan balance. At that point, the remaining balance, or deficiency balance, is considered unsecured debt which is discharged in bankruptcy.

There are a few situations in which it makes sense to surrender your property in bankruptcy. If you cannot afford to make the payments on the asset, or if you think you might not be able to afford the payments in the future, it might be a good idea to consider surrendering the asset. If you owe more on the loan than the value of the property, it also could work in your favor to surrender the property.  However, if you know that you need that car to get around, or could not afford to rent property if you give up your home, it might not be the best choice. For these reasons, you should carefully consider whether it makes sense for you to surrender the asset.

Call a Mecklenburg County, North Carolina Bankruptcy Attorney

If you are considering filing for bankruptcy, it is important to understand how the process works and to have an experienced Gaston County, NC bankruptcy attorney by your side. At Blossom Law PLLC, attorney Rashad Blossom will represent your best interests and advise you on the preferred course of action in your case. Call the office at 704-256-7766 for a complimentary consultation.