If you need Chapter 7 bankruptcy protection, one of your biggest concerns is likely to be whether or not you will lose your assets. The liquidation of assets — ranging from bank accounts to real estate and vehicles — is a lynchpin of Chapter 7 bankruptcy.
In Chapter 7, the chance is high that some of your assets must be sold to pay debt. However, not everything eligible will actually go on the auction block. The trustee may still abandon some of your assets. What does this mean for you? Here's what you need to know.
What Is Abandonment?
Simply put, abandonment of a nonexempt asset by the bankruptcy trustee means that they will not use it to pay creditors. Exempt assets are not abandoned, because these were never eligible for liquidation. Only the trustee's decision not to sell an asset that's part of the bankruptcy estate results in abandonment.
Why Are Assets Abandoned?
There are a few reasons to abandon the sale of an asset.
The most common is when the sale wouldn't net enough money for the bankruptcy estate to make its sale worthwhile. Consider that you have a secondary home worth $100,000 on the market. But you owe $95,000 on the mortgage. If the trustee seizes and sells it, fees will add up to $5,000. There is no money to be made on a practical level from this asset, so they may abandon it.
In addition to simple math, trustees must also weigh the practicality of seizing an asset. Perhaps an asset requires special care and management which simply isn't practical when compared with what the estate receives. This often happens with family pets, for instance. While a purebred dog may have value as an asset, the trustee may not find it beneficial to take over the care and expense of the pet for the duration.
Can You Argue for Abandonment?
No debtor should rely on abandonment as their primary strategy. Ultimately, the trustee makes the final decision. However, some assets are more likely to be abandoned than others.
You can also help make the case that it's better to abandon a particular asset. You know the needs of the asset and the market for it. So you may be able to argue that it wouldn't be practical or effective to sell something in particular. However, this shouldn't be overused.
Where Can You Start?
Learn more about the chances of abandonment with regard to your specific property by meeting with an experienced bankruptcy lawyer in your state today. For more information, contact a lawyer near you.