In re DeGroot

Summarized by Thomas DeCarlo , John Steinberger & Associates, PC
13 years 2 months ago

Citation:

Case No. 11-8083 (6th Cir. BAP 2012)

Tag(s):

Ruling:

Affirmed Bankruptcy Court holding that Chapter 7 Trustee abandoned unscheduled but partially administered asset when Chpter 7 Trustee filed a Notice of No Distribution

Procedural context:

Appeal from the Bankruptcy Court for the Western Distict of Michigan on final order determining asset to have been abandoned by the Chapter 7 Trustee

Facts:

Prior to filing bankruptcy, debtor and his wife divorced. As part of the dissolution of marriage action, Debtor was ordered to pay child support; theex-wfie received debtor's interest in the marital home; and the ex-wie was ordered to pay debtor $48,000 in three installments. When debtor later filed Chapter 7, the ex-wife had made the first of the three installments. Debtor failed to schedule as an asset the balance of payments due from the ex-wife. Debtor also was not paying child support as ordered. Debtor and his ex-wife entered into discussions concerning possible resolution of the child support arrearage by offsetting against the unpaid installments. At that point, Debtor's counsel advised the Chapter 7 Trustee for the first time of the outstanding unpaid installments. Trustee wrote a letter to Debtor and the ex-wife making inquiry about the status of the unpaid installments but took no further action to collect the installments. In the meantime, after multiple inquires to the Chapter 7 Trustee to which Debtor received no response, Debtor and his ex-wife entered into a settlement of the child support arrearage that waived any right of Debtor to receive future installments. Two years later, the Chapter 7 Trustee, having taken no steps to collect the unpaid installments, filed a Report of No Distribution. The Bankruptcy Court concluded that although the settlement between Debtor and the ex-wife violated the autolmatic stay and would be voided and the installments remained property of the estate, equitable considerations, including the Trustee's failure to take any steps to collect the installments combined with the filing of the Report of No Distribution opearted to abandon the asset nder Section 554. Although Section 554(c) normally provides that unscheduled assets are not abandoned even if the Trustee has notice of the asset, Section 554(c) and (d) also allow the Court to "order otherwise" and hold the property abandoned in appropriate circumstances. Bankruptcy Appellate Panel concluded that Bankruptcy Court acted within its discretion in concluding that the Trustee abandoned the unpaid installments when theTrustee's failure to administer the asset and the Trustee failed to respond to inquiries from Debtor, coupled with the fact that any consequences that would result from holding that the asset had not been abandoned would unfairly fall on the ex-wife.

Judge(s):

Emerson, Harris and Shea-Stonum

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