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What happens when property is abandoned by a Chapter 7 trustee?

When you file for Chapter 7 in New York, your trustee is tasked with administering all of the property in your bankruptcy estate. Anything of value that is not covered by an exemption is typically seized and sold so the proceeds can be paid out to your creditors.

Sometimes, however, the trustee abandons a piece of property, meaning that they decide not to sell it. This usually happens when exemptions, liens, or even the condition of the item leaves it with no value that would benefit unsecured creditors. Examples include property that:

  • You have claimed as fully exempt
  • Is subject to a lien that exceeds its market value
  • Fails to find a buyer
  • Is a personal or sentimental item that would be hard to sell, such as a painted family portrait
  • Would leave nothing left for your creditors after the trustee’s commission and sale costs are deducted

For example: You own a pickup truck with a current replacement value of $10,000. New York State allows you to exempt up to $4,550 in equity in a motor vehicle, and you still owe $5,000 on the auto loan. If your trustee were to sell the truck, they would have to pay your lender the outstanding $5,000 balance and pay you the $4,550 that you exempted. This leaves only $500, which won’t cover the costs of the sale and the trustee’s commission, let alone leave anything for your creditors, so the trustee will likely abandon the truck and let you keep it.

How does a trustee abandon property?

When your trustee decides to abandon a home or vehicle or any other items that could have been sold to satisfy your creditors, they will file a Notice of Abandonment to advise the creditors. This notice effectively returns control of the property to you and any creditor who may have an interest in it, so they can proceed accordingly.

For example, if you are behind on your house payments and owe $120,000 on your mortgage, the trustee will probably abandon it if the current market value of the home is $100,000. The Notice of Abandonment advises the lender that they can still go ahead with a foreclosure action unless you have come to a payment arrangement with them.

In most cases, New Yorkers who file for Chapter 7 can cover their personal property with a state or federal exemption, and a married couple filing together can double the coverage. A New York bankruptcy attorney can advise you whether you stand to lose a lot by filing for Chapter 7 and would be better off filing for Chapter 13.

Contact the law office of Jayson Lutzky, P.C. if you are considering filing for bankruptcy. Mr. Lutzky is a highly experienced attorney who handles personal bankruptcy cases. He is admitted to the Southern District of New York and Eastern District of New York and offers free in-person initial consultations. You may reach Mr. Lutzky’s office at 718-329-9500.

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