NJ Bankruptcy Lawyer Explains What “Abandonment” Means Regarding A Chapter 7 Bankruptcy Case.
If a chapter 7 debtor owns real estate, the trustee must determine if he can sell or abandon his right to the property. The trustee will perform a liquidation analysis to determine if there is sufficient equity in the real estate that will allow her to sell the property. If the trustee determines that the real estate has no value or inconsequential value to the bankruptcy estate, she must notify the court of same. The trustee’s notice to the court that she is abandoning her right to the real estate, is called a, Notice Of Proposed Abandonment.
The trustee abandoning real estate is good for the debtor, not bad. This means that the trustee does not want anything to do with the property and she is abandoning her right to the property. This does not mean that the debtor must abandon the property. When the trustee abandons her right to the property, the property comes out of the bankruptcy estate and vests with the home owner(s).
What is the reason for such notice? The trustee is required to forward the proper notice to the court, with a copy to the debtor and all interested parties. Although extremely unusual, any party has a right to file an objection to the trustee’s right to abandon the real estate. If no objection is filed with the court upon a certain date, the abandonment takes effect, prior to the scheduled court date.
The details of a liquidation analysis is explained within this website in another blog. If the debtors’ allowable exemptions exceed the fair market value of the house, minus 10% cost of sale, minus all non-avoidable secured liens, the trustee may not sell the debtors’ house. The following is an example of a liquidation analysis, in connection with a married couple filing a joint chapter 7 case, in which both spouses own the real estate, where they reside.
fair market value of the house $310,000.00
(minus) the only mortgage payoff amount $240,000.00
balance $70,000.00
(minus allowable 10% cost of sale)(10% of $310,000.00) $31,000.00
balance $39,000.00
(minus the allowable exemptions- up to $23,675.00 for each spouse) $39,000.00 ( could use up to $47,350.00 for both spouses)
balance $0.00
In the example above, the spouses could have applied $23,675.00 each, or up to $47,350.00, for both of them. Therefore in the above example, the trustee would not be permitted to sell the house and must abandon her interest in the house. Please note that the debtors and their attorneys should be aware of the liquidation analysis prior to the bankruptcy filing.
Please do not rely on this blog. You must contact your attorney to discuss this very important matter.
Contact Robert Manchel, at 866 503 5644, to discuss how bankruptcy works.