Section 554 of the Bankruptcy Code outlines a Chapter 7 trustee’s right to abandon assets in a Chapter 7 Bankruptcy case. There are one of two ways an asset gets “abandoned” in a Chapter 7 Bankruptcy case. First, trustee files a notice of abandonment with the bankruptcy court or second, presumptively abandoned by trustee. If an asset was listed but not administered by trustee when the case is closed, the asset is deemed abandoned.
The first question is why would a Chapter 7 trustee choose to abandon an asset? The primary reasons to abandon estate assets are a) it would be burdensome to administer the asset or b) it has inconsequential value to the estate.
For example, debtor may own a field full of junk vehicles. Do they have value? Sure, they have value but the value of the scrap vehicles is modest and can you imagine the cost to administer these assets? You would have to hire a wrecker to come and remove these vehicles one by one and then you would have to sell each one of them. The cost to remove the vehicles would likely be more than the vehicles are worth.
The trustee can abandon assets in one of two ways. First, trustee can file a notice of abandonment with the bankruptcy court. If a creditor feels like there is value to these assets, they could object to the abandonment. Second, trustee could let the case get closed without filing a notice of abandonment or administering the asset. Either way, the assets are abandoned.
When an asset is abandoned, the title to the asset reverts back to debtor. Debtor is free to then dispose of the assets however debtor sees fit.
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