- Case Type:
- Case Status:
- Case No. 19-6200, 2020 WL 2317493 (6th Circuit, May 11,2020) Published
- Whether property has value to estate determined at time of proposed abandonment. Although property had no equity as of petition date, Debtor's later motion to compel abandonment denied where equity in property had increased to significant amount.
- Procedural context:
- Debtor sought to compel Trustee to abandon the Estate's interest in Debtor's home. The Bankruptcy Court granted the motion and ordered the Trustee to abandon the property. The District Court affirmed. The Sixth Circuit reversed and held that the Trustee could not be compelled to abandon property that had significant value to the estate.
- Debtor owned a business that borrowed money from Creditor. Creditor took assignment of corporate assets including accounts and also required Debtor to personally guarantee the loan and secure that with a second mortgage on Debtor's residence. After business closed and tangible assets had been liquidated, the loan had a balance of $1 million. Creditor and Debtor agreed to reduce the balance to $425,000 in exchange for Debtor's agreement to facilitate collection of receivables and accounts. Roughly 6 months later, Debtor filed for Chapter 7 relief. As of the petition date, the amount owed to Creditor and secured by the second mortgage exceeded the value of the residence leaving no equity for estate. However, the Creditor successfully collected a substantial amount on the accounts receivable and paid down the balance owed such that the residence now had significant non-exempt equity. The Sixth Circuit first held that post-petition appreciation is property of the estate unless the appreciation is due to Debtor's income derived from Debtor's post-petition personal services. Although Debtor was required under the agreement with Creditor to assist in collection of accounts, there was no evidence that Debtor did so. All of the appreciation was due to payments made by the account obligors to Creditor. The Sixth Circuit then held that the determination as to whether property is "burdensome" to the estate is made at the time of the proposed abandonment. Although as of the petition date there was no equity in the property (and perhaps Debtor would have prevailed in a Motion to Compel Abandonment made early in the case), by the time Debtor actually filed the Motion the property had significant value to the estate and was not burdensome. As such, the Trustee could not be compelled to abandon the property and could administer and sell the property for the benefit of the estate.
- Moore, McKeague and Readler
3264 in the system
2 Being Processed