Revocation of Technical Abandonment

Posted by NCBRC - December 9, 2014

Technical abandonment of an estate asset may be revoked if the abandonment was caused by deception by the debtor or inadvertence or mistake on the part of the trustee. Miller v. Reaves (In re Miller), No. 13-1307 (B.A.P. 9th Cir. Dec. 5, 2014).

The debtor listed “60% of Potential 2012 Tax Refund” of unknown value on Schedule B. The chapter 7 trustee submitted his report of no distribution, the debtor was discharged and the case closed. Later, the trustee received the debtor’s a tax refund and sought to reopen the case in order to distribute the funds. The debtor opposed the motion arguing that the refund had been technically abandoned under section 554(c). The bankruptcy court granted the trustee’s motion.

Bankruptcy Appellate Panel began its analysis with section 554(c) which provides ““[u]nless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor. . . .” Technical abandonment under this section is generally irrevocable when: (1) the asset was properly scheduled; and (2) not administered by the trustee; (3) the debtor’s case was closed; and (4) the abandonment is to the debtor. Under these circumstances, the property is deemed no longer part of the estate and, therefore, out of the control of the trustee.

The panel found, however, that a court may set aside a technical abandonment in “appropriate circumstances.” Such circumstances may include situations in which the debtor falsified information concerning assets or the trustee abandoned the property inadvertently or due to a mistake, and revocation will not cause undue prejudice.

In this case, the bankruptcy court did not make any findings of fact, as required by Rule 9014(c), indicating whether it granted the trustee’s motion based on deception by the debtor or inadvertence by the trustee. Therefore, the panel vacated and remanded the case with instructions to proceed in accordance with this opinion.

Miller 9th bap opinion

Though the Miller court did not delve into the issue at great length, there are a number of ways courts in general have dealt with revocation of a technical abandonment.  See Adam I. Adler, Navigating the Morass: A Proposed Uniform Standard to Determine the Revocability of Technical Abandonments, 27 Emory Bankr. Dev. J. 523, 526 (2011) (stating that “no fewer than six standards are currently employed to determine the revocability of technical abandonments.”). When determining whether to permit revocation of a technical abandonment, many courts apply Bankruptcy Rule 9024 which, in turn, relies on Fed. R. Civ. P. 60(b), relief from a judgment or order. See, e.g. LPP Mortgage, Ltd. v. Brinley, 547 F.3d 643, 649 (6th Cir. 2008) (Rule 60(b) “strikes the appropriate balance between promoting finality and allowing courts to grant relief in limited circumstances”); In re Woods, 173 F.3d 770, 778 (10th Cir. 1999); Cohen v. CitiMortgage, Inc. (In re Ramsburg), No. 10-31369, Adv. Proc. No. 12-573 (Bankr. D. Md. Sept. 13, 2013) (lack of fault on the part of the debtors and the trustee’s failure to conduct reasonable investigation into lien defeated trustee’s attempt to revoke technical abandonment); Frost v. Reilly (In re Reilly), No. 12-3171 (D. N.J. Jan. 8, 2013) (case remanded with instructions to analyze revocation of technical abandonment in accordance with Rule 60(b)). The court in Frost rejected two other ways of treating technical abandonments. That court found that reopening a case under section 350 does not result in automatic revocation of a technical abandonment (rejecting In re Figlio, 193 B.R. 420 (Bankr. D.N.J. 1996)), but it also rejected the debtor’s contention that a technical abandonment is irrevocable like abandonments under section 554(a) and (b).

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