Debtors Have Standing to Seek Abandonment

Posted by NCBRC - July 17, 2017

The debtors were “parties in interest” for purposes of establishing standing to compel abandonment of their residential property. Jahn v. Burke (In re Burke), No. 16-6603 (6th Cir. July 14, 2017).

After Philip and Nekolia Burke filed chapter 7 bankruptcy, the trustee sought to evict them from their residence and sell the property for the benefit of creditors. The trustee tendered a check to the Burkes representing their homestead exemption. The Burkes refused the money and moved to compel the trustee to abandon the property as being of inconsequential value to the bankruptcy estate. In the alternative, the Burkes moved to convert to chapter 13. At the evidentiary hearing, the parties offered competing valuations with the Burkes presenting testimony of two appraisers that the residence had a value of approximately $108,000 and was security for a mortgage in the amount of $91,581. The trustee countered with the testimony of a realtor, a home inspector and himself that the value was approximately $200.000. The bankruptcy court resolved the valuation issue in favor of the Burkes and granted the motion to compel abandonment. The district court affirmed.

On appeal, the trustee argued that the Burkes lacked standing to compel abandonment because the residence was property of the estate and they were, therefore, not “parties in interest.”

The court began its analysis with the text of section 554(b) that “[o]n request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.” The court defined “party in interest” as one who has a stake in the disposition of property. Here, the Burkes had a clear interest in keeping their residence and were therefore “parties in interest” with respect to abandonment. The court rejected the trustee’s argument that, because he offered the Burkes their homestead exemption, their rights to the property were extinguished. Rather, the court found that the homestead exemption is but one statutory remedy for a debtor facing loss of property and that abandonment is an alternative remedy. The trustee cannot simply bypass section 554 by offering the debtor his exemption.

The trustee next argued that the Burkes lacked Article III standing because they suffered no injury-in-fact. Finding that the trustee’s cases supporting this argument were readily distinguishable as involving property that either belonged to the estate (IRS tax assessment) or to a third party, the court disagreed, concluding that loss of their residence would indeed constitute injury to the Burkes.

Citing In re Szekely, 936 F.2d 897 (7th Cir. 1991), the trustee next maintained that he had a right to pay the Burkes their homestead exemption, evict them, and use the property for rental purposes. Again, the circuit court found that the trustee’s tendering of the exemption amount did not extinguish the Burkes’ right to seek abandonment. The court distinguished Szekely as not involving a motion for abandonment.

Finally, the court found that the bankruptcy court appropriately held a hearing to address disputed facts and that its conclusion that the Burkes’ valuation of the property was the more accurate was supported by the record and was therefore not clear error. The court rejected the trustee’s “last ditch” effort to argue that the Burkes’ offer to convert to chapter 13 demonstrated that the property was of value. The argument was not raised before, was not supported by the facts, and relied on a case from another circuit with distinguishable facts.

The Sixth Circuit affirmed.

Tara Twomey filed an amicus brief on behalf of the NACBA membership in support of the debtors in this case.

Burke 6th Cir opinion July 2017

Burke NACBA Amicus 6th Cir Feb 2017

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