A fellow attorney recently asked me this question because the Trustee kept continuing his Chapter 7 client’s meeting of creditors under 11 U.S.C. § 341(a). What’s a work here?
By the way, you may wonder if fellow attorneys really are asking me these questions that I answer in the blog. The answer is, yes. Most of the questions I have dealt with in previous posts were posed to me directly by fellow attorneys. However, a few of the questions I’ve blogged about were originally posed on a list serve of which I am a member, and I happened to be the one who answered them. You are the beneficiaries of those answers.
I. Abandonment Of Assets
A. The Bankruptcy Code’s Provision
The Bankruptcy Code has an entire section dealing with abandonment of assets by a bankruptcy trustee. (This is not the same as dealing with abandonment issues, which require the services of a competent, licensed psychiatrist to resolve.) That section is 11 U.S.C. § 554. The portions that are relevant to answering my colleague’s question are §§ 554(b) and (c):
(b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
c) Unless the court orders otherwise, any property scheduled under section 521 (a)(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.
B. The Federal Rules Of Bankruptcy Procedure’s Mechanism
Fed. R. Bankr. Proc. 6007(b) provides the mechanism for accomplishing the process:
A party in interest may file and serve a motion requiring the trustee or debtor in possession to abandon property of the estate.
II. The Debtor Can Force The Trustee To Abandon An Asset
The debtor is most certainly a party in interest, so the debtor can file a motion to compel abandonment under § 554(b), pursuant to Fed. R. Bankr. Proc. 6007(b). See, e.g., Wissman v. Pittsburgh Nat. Bank, 942 F. 2d 867, 873 (4th Cir. 1991):
[The debtor] may . . . move the bankruptcy court to compel the trustee to abandon the estate’s interest in any [asset] pursuant to Bankruptcy rule 6007(b). If, after a hearing, the trustee refuses to abandon or join the action, the bankruptcy court should compel abandonment . . .
However, in the motion the debtor must
. . . establish by a preponderance of the evidence that the Property [i]s burdensome or of inconsequential value and benefit to the estate . . .
In re Viet Vu, 245 B.R. 644, 650 (B.A.P. 9th Cir. 2000).
As seen in the Viet Vu case, if the trustee can refute the debtor’s assertion of inconsequential value, then the motion will, of course, be denied. In that case the trustee filed a sale motion that was granted at the same hearing set to consider both the sale motion and the motion to abandon. Since there was a buyer who would pay enough to provide a dividend to the creditors, the property was obviously not burdensome or of inconsequential value. Id. at 646 .
When enough time has passed after the initial meeting of creditors, the debtor could argue that the asset is burdensome or of inconsequential value because the trustee has been unable to liquidate it after such a long time. How long is enough time? It’s hard to say, and will depend on the circumstances.
III. Compelling The Trustee To Conclude The Meeting Of Creditors
Another approach is to move the Court to compel the Trustee to conclude the meeting of creditors. Such a motion should include an argument based on Fed. R. Bankr. Proc. 4003(b)(1):
Except as provided in paragraphs (2) and (3), a party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later.
In other words, if the Trustee is permitted to continue the hearing indefinitely, the debtor remains in a state of limbo regarding his exempted assets, and needs the meeting concluded to enjoy his assets without fearing a challenge to his exemptions.
Once the motion is granted, then you can bypass the Court and ask the clerk’s office to issue the discharge, and shortly thereafter ask the clerk’s office to close the case. At that point § 554(c) applies, and the asset is abandoned to the debtor.
However, don’t bother to take any action unless many months have passed. A judge is likely to defer to a trustee who says that the asset can be liquidated for the benefit of creditors unless so much time has passed that it looks like the trustee is unreasonably stalling.
IV. A Recent Horror Story
Finally, see In re Gebhart, 621 F. 3d 1206 (9th Cir. 2010) for an example of a case in which the Debtor initially was able to exempt the equity in his primary residence, but ended up losing the property because the value increased above the equity exemption amount before the Bankruptcy Court closed the case. In that horror story the liquidation sale took place more than five years after the filing date! It is because of this case that I recommend trying the compelling conclusion of the 341 approach, followed by bypassing the Court and using the clerk’s office to get the discharge issued and the case closed.