If a debtor’s schedules disclose an asset, and the trustee files a Trustee’s Report of No Distribution, then the asset is deemed “abandoned” and ownership reverts to the debtor. 11 U.S.C. Section 544(c). This is what happens in probably 98% of the Chapter 7 cases. There is, however, a couple of important caveats.
Reservation of an Asset
If a disclosed asset is something that might not become recoverable for a long period of time, the Bankruptcy Code allows trustee to file a motion with the court to be allowed to close the case, but to reserve a particular asset from being deemed abandoned. EXAMPLE: debtor is divorced, but has the right to live in the marital home for five years, and then must sell it and divided the equity with her former spouse. Her right to receive equity in the future is an asset of the bankruptcy estate. But rather than keep a case open for five years, I can file a motion to reserve the asset and go ahead and close the case. In five years, if there is enough equity that is not exempt, then I can decide to re-open the case and administer the asset (or not). Another example is a class action claim that could take many years to come to fruition. Or a beneficial interest in a trust that does not vest until years down the road. Any asset can be reserved if the court approves it.
The Undisclosed Asset
If the debtor’s schedules fails to disclose the existence of an asset, it is not abandoned by closure of the case. 11 U.S.C. Section 544(d). A good example is the pelvic mesh cases. These are medical product claims that debtors likely did not even know about at the time bankruptcy was filed. Even though debtor learned of the claim later, the actual claim and all the elements for recovery existed before bankruptcy. So it is an asset of the Chapter 7 bankruptcy estate, and I can reopen the case and administer it because it was not disclosed in the schedules.
An Unscheduled Asset Trustee Knows About
If I learn about an asset the schedules do not disclose, and for some reason close the case anyway, is the asset deemed abandoned? In my opinion, it is not abandoned. I believe the better reasoned view is that if the asset is not scheduled, it is not abandoned by closure of the case. I have had situations where a debtor claimed to have “called the trustee” and reported the existence of an asset, and the case was thereafter closed. I think that, rather than risking a “he said-she said,” situation, the better rule is that the debtor should amend the schedules, and that trustee may then rely upon, and is bound by, the schedules as amended.