Why Would A Bankruptcy Trustee Abandon Property?
In a bankruptcy, any property that you own that is not protected can be taken by the trustee, sold or liquidated, and the proceeds given to your creditors to pay off your debts. Although for most people, their property will fit under the allowed exemptions, thus avoiding property from being taken, sometimes even when and if property can be taken, it isn’t – which doesn’t seem to make a lot of sense.
Giving the trustee more incentive to take and sell property is the fact that the trustee is paid in part based on property that he or she can get from the debtor, and sell for the benefit of creditors.
But sometimes, even though the trustee can take property, they opt not to. This is called abandoning property. Why would this happen? Why would the trustee voluntarily opt not to take property that they can take and make money on (as well as help pay creditors with)?
Cost of Liquidation
The trustee may sometimes opt not to take property that could otherwise be taken for many reasons. One reason is the cost of liquidation. Some property can be easily liquidated and sold–think of selling things on ebay, which takes little or no time, effort or money to sell.
On the other hand, think of a car that may need repairs, and then need to be sold at auction, where an auction company may need to be paid. If the car has some value, then selling it makes sense–the trustee and creditors will make money.
But what if the car only has $1,000-$3,000 in value? In that case, the cost of selling the car may eat up whatever value the car has. This means the trustee is essentially working for no money to sell a car that will yield nothing for the trustee or the creditors.
Some assets may have a lawsuit attached to it, such as when parties dispute who owns the property. If there is reason for the trustee to believe that taking property could lead to a lawsuit, or that there would be a legal fight to determine ownership of property, the trustee may feel that it isn’t worth the money it would cost to litigate the lawsuit, and may opt just to abandon the property.
Sometimes there may be property that the trustee determines that nobody else will want to buy. Maybe the property would need significant repairs before it can even be in saleable condition.
Think of an old instrument. The instrument is worth nothing if it’s broken. If it is very valuable fixed the trustee could take it, fix it and sell it. But if its value is nominal even if fixed, the trustee may abandon it, under the belief that the costs of fixing it would eat into the entire value of the property.
If you have a business that is private to you, the trustee may abandon it as well. For example, if you are a photographer or an artist, your business isn’t worth anything without you being a part of it.
Once property is abandoned, the property is no longer a part of the bankruptcy estate, and remains yours. The trustee will file a notice of abandonment, but you can also file a motion, asking the trustee to abandon property.