Disagreeing with bankruptcy and district judges in Florida, Bankruptcy Judge Laurel M. Isicoff of Miami ruled that a statement of intention to surrender a home does not compel a chapter 7 debtor to withdraw defenses to foreclosure.

As Judge Isicoff said in her Feb. 29 opinion, there is “an ongoing debate about the meaning of ‘surrender’ and what the consequences of surrender are.”

Like similar cases in Florida and elsewhere, the chapter 7 debtor filed a timely statement of intention to surrender his home under Section 521(a)(2). He did not schedule the mortgage debt as disputed. He got his discharge, but the trustee did not “administer” the home, so it was automatically “abandoned to the debtor” under Section 554(c).

The lender sought and obtained a modification of the automatic stay, but the debtor took discovery and submitted defenses in the foreclosure proceeding. The lender filed a motion to reopen the bankruptcy case and compel the debtor to drop defenses to foreclosure. Judge Isicoff declined to reopen the case and denied the motion to compel.

In Florida, Bankruptcy Judges Paul G. Hyman Jr., Eric P. Kimball and Michael G. Williamson have held that a statement of intention to surrender a home bars a debtor from opposing foreclosure. District Judge Kenneth A. Marra in West Palm Beach upheld Judge Hyman in Failla v. CitiBank NA. To read ABI’s write-up on Failla, click here.

Judge Isicoff said that District Judge Marra “did not cite to any Bankruptcy Code section” for his conclusion that a statement of intention to surrender abandons any interest in property or claim against the lender.

She also said that the Code nowhere says that property surrendered by a debtor is surrendered to the lender. Rather, she said, the debtor surrenders the property to the trustee, and the trustee abandons the property to the debtor if it is not administered.

Judge Isicoff pointed out how the Code gives recourse to the lenders, such as moving to modify the stay or compel the trustee to abandon the home. “What the Bankruptcy Code does not allow,” she said, is for the lienholder “to wait three years or even three months, and then come back to the bankruptcy court and seek relief to which it is not entitled.”

Near the end of her opinion, Judge Isicoff said that the discharge of personal liability does not “dictate a punitive response if the right to surrendered property reverts” to the debtor. If there is to be a change in the law, she said, it’s “up to Congress, not the courts.”