Chapter 7 Abandoned Property

Posted on February 9, 2015 at 8:25am by

What Happens When the Trustee Abandons Property in a Chapter 7 Bankruptcy?

When you file your petition for Chapter 7 bankruptcy, except for property that is considered exempt, trustees can sell your assets to raise funds to pay your creditors. On the other hand, trustees may opt to abandon non-exempt property. The usual reason for abandonment is that selling the property would not generate enough funds to make selling it worth the effort.

For example, if you have $3,000 exempt equity in your car that has a market value of $10,000 but you owe the lender $12,000. There will not even be enough money to pay the lender after a sale. The trustee will then abandon the car. What happens next depends on your unique circumstances.

What Happens to Abandoned Property?

If you own the abandoned property free and clear, you get to keep it. This is generally the case with personal items such as your furniture, ordinary jewelry and other household items. If you still owe a creditor for the item, as in the example given of the car, one of several things may happen.

  • You can reaffirm the debt, which means you and the lender will enter into a new financial agreement. In some situations, the lender may reduce the interest rate which will reduce your monthly payments. Otherwise, you will make the same payments you did before the affirmation.
  • You can give the car up to the lender. This is called “surrender.”
  • You can pay off the loan in full and keep the car.

You risk losing abandoned property to the lien holder. If you are behind on your car payments when the trustee abandons it, and you do nothing to reaffirm the loan or negotiate with the creditor terms that will allow you to keep the car, the creditor can proceed with repossession efforts.

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