Property Abandonment in Chapter 7 Bankruptcy
If the trustee abandons property in Chapter 7 bankruptcy, that usually means you get to keep the property.
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If the trustee abandons some of your property in Chapter 7 bankruptcy, that usually means you get to keep the property. Learn what property abandonment is in Chapter 7 bankruptcy, when the trustee might abandon property, and the methods used for property abandonment.
Property and the Trustee in Chapter 7
When you file a Chapter 7 bankruptcy, a trustee is appointed to administer the property in the estate. The trustee must account for all of the property you list in your bankruptcy paperwork and file reports showing what was done with it.
If there is property in the bankruptcy that has value for unsecured creditors and you do not claim that value as exempt, or the value exceeds the amount of any available exemptions, the trustee is charged with taking possession of and selling the property. (To learn how exemptions work, see our Bankruptcy Exemptions area.)
The trustee then uses the money collected from the sale to pay your creditors. The trustee gets a percentage commission based on the money that the trustee pays out.
But what if you own something that has no value for creditors? In that case, the trustee may abandon the property.
Property That Has No Value Over Liens and Exemptions
When the trustee determines that items in your bankruptcy estate do not have value which would benefit unsecured creditors, the bankruptcy law allows the trustee to “abandon” the property so that the trustee is no longer responsible for it. This could be something that:
- no one wants to buy
- has a lien in excess of its value,
- you have claimed as fully exempt, or
- after the costs of sale and trustee's commission there would be nothing left for creditors.
In most instances, when the trustee abandons property, the property goes back to you.
A good example is an automobile that is worth less than what is owed on the car loan. Say you own a car worth $10,000 but have a car loan for $12,000. If the car were to be sold for $10,000, its full value, it would not be enough to pay off the loan which is secured by the car. Under this scenario, there is “no equity,” or no value over the amount of the loan secured by the vehicle, so there is no benefit to the unsecured creditors if the trustee were to sell the car.
If the equity in the vehicle is so small that it would not cover the cost of taking possession, storing, insuring and selling the vehicle, or if the entire equity in the vehicle was claimed by you as exempt, it would also be considered to have no value to your creditors. Under these circumstances, the trustee will abandon the vehicle.
How Does Abandonment Occur?
This varies depending on whether the abandonment takes place while the case is open or at the closing of the case.
Abandonment in an Ongoing Case
In order to abandon property while a bankruptcy case is pending, the trustee gives the creditors written notice that the trustee intends to abandon specific property, tells the creditors why, and gives creditors at least 14 days to file a written objection to the abandonment with the bankruptcy court. If no objections are filed or if the judge overrules the objections, the property is abandoned and the trustee files a report saying the abandonment is complete. There are some instances when the procedure may vary under local rules or emergency situations but, generally, notice and an opportunity to object is the method used.
Abandonment at Closing
Normally, the court will not allow a trustee to close your bankruptcy case without either selling or abandoning all of the property. However, if the trustee closes the case before all of the property is administered, any remaining property is considered abandoned unless the court has ordered otherwise. This applies only to property that you listed in the bankruptcy schedules -- it does not apply to property you concealed.
Effect of the Abandonment
Once an abandonment is final, the property is no longer property of the bankruptcy estate and is not under the control of the trustee. The trustee is not responsible for it nor can the trustee sell it, secure it, or have anything more to do with it.
Who Gets the Abandoned Property?
Under the bankruptcy law, abandoned property goes back to anyone who has the legal right to possess the property. While the meaning of this is not always clear, in the overwhelming majority of cases, this means the property is returned to you. There might be an exception if the property was already in the hands of a creditor before the bankruptcy was filed and, under state law, the creditor had a right to legal possession.
Using the vehicle example, when the trustee abandons your car because the balance on the loan together with your exemption, exceeds the value of the vehicle, you can keep the car. You still have to pay on the car loan but you no longer have to worry that the car will be sold by the trustee.
Can You Force an Abandonment?
The bankruptcy laws permits any party in interest to file a motion with the court requesting that the court order and direct the trustee to abandon certain property. If you file the motion, you will need to prove to the court that the property has no value to the bankruptcy estate and you will probably need to show why giving the trustee more time to try to sell the property would be detrimental to you. A motion to compel an abandonment is rarely necessary since the trustee is only interested in administering property that can result in money to pay creditors.