Can I Keep “Cash for Keys” Money I Receive After My Bankruptcy Is Over?

Cash for KeysASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions. 

Dear Leon, 

My husband and I just got a Chapter 7 discharge. We were previously in foreclosure and walked away from our home.  

Before we left, our mortgage lender offered us a series of payments payable in two week increments if we moved out voluntarily. The longer we stayed, the less we would get. We did a final walk through with the bank representative (we were supposed to leave the house in “broom clean” condition) and then he handed us the final check. The total amount the lender paid us was $8,310. 

Here’s my question: Can we keep this money or do we have to give it to the bankruptcy court? 

Sincerely, 

Crystal

Dear Crystal,

I have great news for you. You can keep the money you received from the lender’s “cash for keys” deal and don’t have to report it to the bankruptcy trustee, if the following are both true:

  • your house was correctly listed in your bankruptcy case, and
  • the court made an order “closing” your bankruptcy case.

Cash for Keys

The deal the lender offered to you is referred to as “cash for keys.” In a cash for keys deal, the lender offers money to induce you to voluntarily leave the property. Cash for keys deals are common in foreclosures, evictions, and deeds in lieu of foreclosure.

In a typical cash for keys deal, the lender sets a deadline for you to be out. You don’t get the money until you vacate. “Broom clean” means you have tidied up the place, didn’t damage anything, and didn’t leave a pile of junk behind. There is typically a final inspection where you hand in the keys and the lender hands you a check.

Assets in Your Possession When Your Bankruptcy Case Closes Are Yours to Keep

The filing of a bankruptcy case creates an estate composed of everything you own. You can exempt certain assets from the bankruptcy estate – if assets are exempt you can keep them. After you get a bankruptcy discharge the court normally issues an order closing your case. The law says that upon closing the case, all assets still in your possession that you listed in the bankruptcy (whether exempt or not), will revert back to you.

If you correctly listed your home in the bankruptcy and the court issued and order closing your case, then you had every right to enter into the cash for keys agreement. The resulting money is yours to keep and you don’t have to report it to the bankruptcy trustee.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.