The Chapter 7 Trustee’s Role
When you file a Chapter 7 bankruptcy, a trustee is appointed to administer the bankruptcy estate property. The bankruptcy estate is everything you own as listed on Schedules A and B of the bankruptcy petition.
What if there is a non-exempt property in the bankruptcy estate with a value that can be used to pay your unsecured creditors? In that case, the trustee must take possession of the property and sell it. The trustee uses the money to pay your creditors and earns a commission for his or her work.
On the other hand, if the trustee determines that your bankruptcy estate includes no value items, bankruptcy law allows the trustee to “abandon” the property. See 11 U.S.C. §554.
Here is a Simple Example:
Say you own a car worth $15,000, but the balance due on your car loan $17,000. If the vehicle is sold for $15,000, there would not be enough money to pay off the loan. Therefore, there is no value in the car. And because there can be no benefit to the unsecured creditors by selling the vehicle, the trustee will abandon it. Remember, the transaction’s net cash has to exceed the secured loan and produce enough to cover the sale costs, including the trustee’s commission.
How Does Abandonment Occur?
To abandon a property, the trustee gives written notice to the creditors of his or her intention. The information offers creditors at least 14 days to object to abandonment. If no objections are filed, or the judge overrules the objections, the property is abandoned. You will receive a copy of the notice, as well. Do not be alarmed. For the debtor, abandonment is a good thing. And it is unlikely any creditors will object.
Ultimately, the trustee must provide an accounting to the court showing what was done with your property. The trustee’s role is to liquidate your non-exempt property with a value that can be used to pay your unsecured debts. Typically, the court will not allow a trustee to close your bankruptcy case without selling or abandoning your property. However, if the trustee does close the case before the property is administered, it will be treated as abandoned. This applies only to property you listed in the bankruptcy schedules — it does not apply to the property not included on Schedules A and B of your bankruptcy petition.
What Happens When My Property is Abandoned?
Once abandonment is final, the property is removed from the bankruptcy estate and the trustee’s control. Under bankruptcy law, the abandoned property is usually returned to the debtor. Using our car example above, when the trustee abandons your car, you get to keep it. You still have to pay the car loan, but you no longer have to worry the trustee will sell the vehicle.
Beware: as with every rule, there are exceptions! For example, if the vehicle was lawfully repossessed before the bankruptcy, your creditor may be able to keep it.
