Abandonment of Property By Bankruptcy Trustee

A Bankruptcy Trustee moved to sell the property of a debtor and the debtor cross-moved to compel abandonment of the property based on the debtor's reported transfer to another. Under Section 11 U.S.C. 554(b) of the Bankruptcy Code, the court may, upon request of an interested party and notice of hearing, "order the Trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit." The burden is on the party seeking to compel abandonment to show the property meets the criteria for abandonment. If the burden is met, then the burden shifts to the Trustee to show that the property is of value and can be utilized to satisfy a debt of the bankruptcy estate. The debtors in the matter of In re Taggart sought abandonment on the grounds that the real property was not part of the bankruptcy estate according to Bankruptcy Code Section 541(d) and that, if the real property is deemed to be property of the bankruptcy estate, a constructive trust should be imposed in favor of the disputed buyers. The debtor, Raymond Taggart, claimed the property was transferred to his brother and sister-in-law, Dennis and Kathleen Taggart, brother and sister-in-law of the debtor, prior to filing bankruptcy. Under the law, Raymond Taggart was without rights to transfer the property without assent of the mortgage holder. The Taggart's second argument was that a constructive trust in favor of the alleged buyers, Dennis and Kathleen should be imposed post-petition. Under Section 544(a) the trustee has power to avoid any transfer by the debtor or any voidable obligation incurred by the debtor. The Taggarts could not provide evidence they were bona fide purchasers for value and had not recorded any deed transfer. At best there was an agreement of sorts between brothers and perhaps there was intent to transfer the property to Dennis upon payment in full of the mortgage. Even if transfer to Dennis upon full payment was the intent, Dennis and Kathleen could have taken steps to obtain their own mortgage on the property in order to pay off the mortgage taken by Raymond. As long as Dennis and Kathleen could not obtain a mortgage, Raymond was not unjustly enriched by their payment of the carrying costs because it could be considered rent. For the foregoing reasons, the court finds that there was no basis to impose a constructive trust and the trustee was not required to abandon the property but rather could sell it for the benefit of the unsecured creditors. The manner in which property is titled and used by the debtor can affect the treatment of such property in the event the debtor files for bankruptcy. Knowing how your assets are likely to be treated in bankruptcy often makes a critical difference in the decision of whether to file. If you are considering bankruptcy you should consult with an experienced bankruptcy attorney immediately in order to protect your rights. For more information regarding foreclosure, bankruptcy or other consumer debt matters in New Jersey visit TheNJBankruptcyAttorney.com. This blog is for information purposes only and in no way is intended to replace the advice of an attorney regarding your specific matter. Our law firm is a debt relief agency and helps people file for bankruptcy relief.