A motion to abandon could be the answer you’re looking for if you want to sell your home right after you file bankruptcy.
Filing bankruptcy creates something called a bankruptcy estate. A bankruptcy estate is like a large, imaginary basket that your unprotected assets go into. Everything you own falls into one of two categories: exempt (protected) or non-exempt property (unprotected).
There are rules that protect certain assets. Those rules are called exemptions. Exempt property (such as household goods up to a certain value) is protected by exemption laws that prevent the trustee from selling the property and giving the proceeds to your creditors.
The trustee can sell non-exempt property and use the proceeds to pay your creditors, which means if your home is worth more than the homestead exemption, the trustee can sell it to get money to your creditors.
A Motion To Abandon Forces The Chapter 7 Bankruptcy Trustee You To Sell Your Home
Sometimes, though, you might have non-exempt property (such as a home) that isn’t worth enough for the trustee to go to the effort of opening a case, selling the property, giving you your homestead exemption proceeds, and paying for the cost of the sale.
If your home is worth more than you can protect with the homestead exemption, the trustee must do some math. Your home must have enough equity (the difference between how much you owe on the home and how much the trustee can sell the home for) to pay off the mortgage and any other liens the property has, pay for the costs of the sale, pay you the amount of the homestead exemption (the equity that is protected), and provide a meaningful dividend to your creditors.
If the trustee does his math and realizes there isn’t going to be any money to give to your creditors, he won’t sell the house.
The problem is the house is still non-exempt and you can’t sell the house while your bankruptcy case is open. At minimum, a Chapter 7 will be open for about 120 days. It could be open longer under a variety of circumstances. It’s impossible to know how the housing market and the price you can get for your home could change while you wait.
If you need to sell your home before your case closes, you must get the house out of the bankruptcy estate.
If your bankruptcy estate includes non-exempt property that you want the trustee to declare that she will not be selling, you can ask the court to declare that it has been abandoned by filing a motion to abandon.
Section 554 of the Bankruptcy Code states:
(a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
(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.
(d) Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate.
You have to give the court the reason why you want the trustee to abandon the property. In this example, the reason is that there is no value to the estate. Selling it won’t result in any money going to your creditors.
You are not going to be able to persuade the court to grant your request if there is a possibility that the sale of the house could result in money going to your creditors.
Once you file your motion to abandon, your creditors and the trustee can respond. They usually have 21 days to do so. While it is unlikely your creditors will respond, there isn’t any guarantee that the trustee won’t. Before you ask your lawyer to prepare a motion, she should probably talk to the trustee to see if the trustee will offer any resistance to the motion.
If no one objects to the motion to abandon, the court will grant your request.
What this means is that if the trustee abandons the property, you can treat it as though it is exempt. However, until the property has been abandoned or the court closes your case, the trustee can still sell it. In that case, you should hold onto any non-exempt property and make sure nothing happens to it.
If you have questions about what property you can protect when you file bankruptcy, let us know. We offer free consultations to people who are considering bankruptcy. The easiest way to schedule an appointment with an experienced Denver, Colorado bankruptcy attorney is by clicking here.
Check out our client reviews on Google, Avvo, and Facebook!
