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ABANDONMENT OF ASSETS

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.  WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.

In re Rich Bankruptcy Number 10-21536 (District of Utah), Nice discussion about abandonment. Creditor obtained unopposed staylift order to foreclose on debtors residence. Debtor then filed motion to abandon so he could do a short sale, with no money to debtor. Trustee opposed abandonment but did not assert any equity in the property:

The Debtor’s stated purpose for seeking abandonment of the Real Property is to effectuate a short sale of the Real Property prior to a scheduled foreclosure sale. The Court finds that a party in interest’s motivation for seeking abandonment is irrelevant. The only question the Court should properly address under § 554(b) is whether the property is burdensome or of inconsequential value to the estate.

When faced with a § 554(b) motion a Trustee has two options: He may concede that the property is burdensome or of inconsequential value and abandon the property or he may demonstrate to the court that his administration of the property will result in a benefit to the estate and he should be allowed to administer the property. Failure to administer property that is of value and benefit to the estate is not an acceptable option and failure to abandon property that is burdensome is not an acceptable option.

The Trustee has had since November of 2011 to administer the Real Property which is an asset of this estate. There is no evidence in the docket that the Trustee has attempted to market the Real Property by employing the services of a real estate professional or appraiser, nor does the Trustee allege in his objection that he is attempting to sell, or intends to sell the Real Property sometime in the future.6 Importantly, the Trustee does not allege that there is equity or even the possibility of equity in the Real Property. Accordingly, the Court finds that the Real Property is burdensome to the estate and is of inconsequential value to the estate and the Debtor’s motion to abandon the Real Property shall be granted.

Asset listed in SOFA, not not Schedule A/B

In re Stevens, 9th Cir BAP CC-19-1325 (7/2/20) Chapter 7 debtors Jasper Stevens and Brenda Louise Murray Stevens disclosed a civil suit in their statement of financial affairs but not in their schedule of assets and liabilities. And while they provided the chapter 7 trustee with information relevant to the lawsuit, they never amended their schedules. The lawsuit and its claims (collectively, the “Claims”) were not administered before their chapter 7 case closed. Later, however, the
bankruptcy court reopened the case and, at the request of the Trustee, approved a settlement that resolved them. Debtors appeal. They argue that the Trustee could not compromise the Claims because he technically abandoned them under § 554(c). We disagree, and we AFFIRM.


In re TADAYON, 9th Cir. BAP No. NV-18-1119-BKuTa (April 29, 2019)

Abandonment can also occur under § 554(c),6 if property of the estate is properly scheduled by a debtor but not administered by the trustee by the time the case is closed. This has been characterized as a “technical abandonment.” Vasquez v. Adair (In re Adair), 253 B.R. 85, 88 (9th Cir. BAP 2000)

“Abandonment is a term of art with special meaning in the bankruptcy context. It is the formal relinquishment of the property at issue from the bankruptcy estate.” Catalano v. C.I.R., 279 F.3d 682, 685 (9th Cir. 2002). Abandoned property ceases to be part of the estate and reverts to the debtor “as if no bankruptcy petition was filed [and] is not property administered by the estate.” Dewsnup v. Timm (In re Dewsnup), 908 F.2d 588, 590 (10th Cir. 1990) (emphasis in original). The burden of proof on whether an abandonment occurred is on the party asserting it. Hanover Ins. Co. v. Tyco Indus., Inc., 500 F.2d 654, 657 (3d Cir. 1974); Westphal v. Norwest Bank (In re Missouri River Sand & Gravel, Inc.), 88 B.R. 1006, 1010 (Bankr. D. N.D. 1988). In this case, that would be Afshin.

There are three requirements for technical abandonment under § 554(c): (1) the asset must have been properly scheduled; (2) not administered by the trustee; and (3) debtor’s case must close. If these requirements are met, technical abandonment of the asset to the debtor occurs. See In re DeVore, 223 B.R. at 197. However, property that is neither administered nor abandoned (including property not properly scheduled that was never administered) remains property of the estate. § 554(d).

Afshin did not disclose the State Court Action in Schedule B of his Schedules of Assets and Liabilities. However, he did disclose it in Question 4 of his SOFA and to the trustee.  Bankruptcy Court refused to reopen case to set aside the abandonment, affirmed by the BAP.

In re Pena, 9th Circuit BAP May 2019. The trustee abandoned real property. Prior to abandonment, the trustee had collected rents from such properties. The debtor wanted those rents, but the trustee said just because he abandoned the real property did not mean that he was abandoning the rents he had previously collected.

The case cites a recent unpublished California District Court decision, where the trustee abandoned real property, but then wanted the rents paid to the estate (i.e., rents paid AFTER the real property had been abandoned). Granted, the debtor lied that he was using the rents to pay the mortgage, but the court still made a point to say that “numerous courts have held that the abandonment of real property does not also abandon personal property that is related to, but separable from the real property, such as rental proceeds or insurance policies.” Pham, 2019 WL 77505, *5 (citing Pierson v. Paris (In re Humeston), 83 F.2d 187, 189 (2d Cir. 1936);12 see also In re Hat, 363 B.R. at 141-42 (abandonment of farms did not result in abandonment of insurance policies covering crops grown on the farms).

Side bar: should our motions to abandon homesteads should be more inclusive, and state that we are not just abandoning the real property, but any of the personal property related to that property (like rents, sale proceeds, etc.).  Of course, that may prompt the trustee/lawyer file a limited objection and clarify that any homestead sale proceeds to be reinvested within the 180 days (Arizona), or the case can be reopened.

Bird v. Hart, 19-54 (D. Utah May 19, 2020 – 10th Cir.)  Chapter 7, Debtors had interest in business – referenced in several schedules and SOFA.  Trustee closed case, later tried to reopen to administer the business interest.  There is a split among the lower courts on Section 554(c). The majority hold that an asset is automatically abandoned only if it is listed in the schedule of assets under Section 521(a)(1)(B)(i). Those courts believe that an asset is not automatically abandoned if it is listed elsewhere in the schedules and statement of affairs. Minority – Bankruptcy Judge Marker and subsequently District Judge Parrish took the plain-meaning approach and interpreted the section more broadly to allow abandonment if the asset was disclosed anywhere under Section 521(a)(1). Had Congress intended the more narrow reading, she said, Congress would have drafted the statute to “specify that the scheduling must occur under 521(a)(1)(B)(i).”