Discuss the reasons a trustee may want to abandon a certain article of property in the bankruptcy estate. What steps must the trustee take after he or she decides that certain property in the bankruptcy estate should be declared abandoned?

Question

What will be an ideal response?

Answer 1

In a Chapter 7 case, all of the property the debtor owns and disclosed on the schedules becomes part of the bankruptcy estate. The trustee is charged with managing the estate and seeing that nonexempt property is sold. The money the trustee acquires from the sale of the nonexempt items is distributed hierarchically to the unsecured creditors. Sometimes a trustee may deem certain property in the bankruptcy estate to be of little value and he or she may decide it is not worthwhile to sell. This may be true for several reasons: a particular piece of property may be so encumbered by liens or other encumbrances that it is completely devoid of value, an unencumbered article of property may not have enough value to make it worth selling after the costs associated with the sale and the trustee's commission are deducted, the portion of value in the item subject to exemption does not leave enough value in the item to warrant a sale, the item is fully exempt, the item is not popular for sale for one reason or another (i.e., a parcel of real property that is undesirable–no curb appeal).

If the trustee deems certain property to be worthy of abandonment, he or she must place all interested parties on notice of the proposed abandonment. Within 14 days of mailing the notice, any party in interest who wishes to object must do so. If an objection is raised according to the Federal Rules of Bankruptcy Procedure, the court sets the matter down for a hearing. If, at the hearing, the court either deems the property worthy of abandonment or overrules any objections, the property will no longer be part of the bankruptcy estate. The property, unless it is in the rightful possession of a creditor, will be returned to the debtor. Most objections raised prior to abandonment are raised by other creditors. If one or more creditors object to the abandonment of a certain item of property, they must prove that the property has value above any lien against the property and that this excess value is high enough to allow for a distribution to the creditors.