What is Abandonment in Bankruptcy?

Charles D. Whelan III, Esq. Profile Image

Charles D. Whelan III, Esq.

New Brunswick, NJ

Practice Areas

Personal Injury

After a Chapter 7 debtor attends the 341 meeting of creditors, s/he may receive a notice in the mail from the court regarding abandonment. This is a great point of confusion for clients so let’s explain.

Upon the filing of a bankruptcy petition, the debtor’s assets come under the control of the court and the bankruptcy trustee. If there is a significant asset with value, the trustee may decide to sell that asset and distribute that money to the debtor’s creditors. In determining that, the trustee will review the petition, require documentation to be submitted prior to the meeting of creditors and question the debtor at the meeting of creditors. S/he may also elect to do further investigation. If the trustee concludes that there is no asset of value, s/he will elect to abandon his/her interest in the asset.

A common asset to be abandoned is a home, which may have minimal or negative equity. In that case, there is no point in the trustee trying to sell it because there would be no net proceeds.  In order for the trustee to abandon his/her interest in a property, s/he must serve a notice of intention to abandon on all creditors, giving them a period of two weeks to file an objection and request a hearing. If no one objects, then the Clerk will file a certification of no objection and the property is deemed to be abandoned by the trustee.

So if you own a home and are going through a Chapter 7 bankruptcy, it is actually a good thing for you to receive a notice of abandonment, because that evidences the trustee’s intention not to try to sell your home, but rather the notice is necessary for you to keep your home.

 

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