What Does Proposed Abandonment in Bankruptcy Mean?

If you file for bankruptcy and have no assets that can be administered, you may receive a notice of proposed abandonment of property. The notice of proposed abandonment is not a proposal for you to abandon your property. Rather, this is the bankruptcy court’s way of notifying you that you may be allowed to keep certain property. This notice also goes out to your creditors, who could have received payment from the sale of the property.

A Chapter 13 bankruptcy case requires that you repay your creditors over a period of three or five years. You pay your creditors via a debt repayment plan that the bankruptcy court must approve. While you make payments into the plan, you keep all of your property. At the end of the plan, you will have paid off many of your debts. In a Chapter 7 bankruptcy case, on the other hand, you do not have to pay your debts. The payment of your debts will depend on the type and the value of the property you own. If none of your creditors receive payment through your filing a bankruptcy case, you can still receive a discharge under Chapter 7 bankruptcy.

When you file your bankruptcy petition, a couple of things happen. Your property becomes property of the bankruptcy estate, and a bankruptcy trustee administers your case. The bankruptcy trustee has the responsibility to take control of your property, liquidate that property and use the earnings to pay your creditors. The bankruptcy trustee categorizes your property as exempt property and nonexempt property. The trustee cannot sell your nonexempt property, and therefore she will return this property to you. State and federal law designates property that the trustee cannot sell.

Nonexempt property remains property of the bankruptcy estate and eligible to be sold to pay your creditors. The bankruptcy trustee may decide, however, not to sell certain property of the bankruptcy estate. In that case, the bankruptcy trustee will abandon that property to you. This is when you and your creditors will receive a notice of a proposed abandonment of property. This notice informs you that you can keep your property, and it informs the creditor why he will not receive payment from the liquidation of this property.

A bankruptcy trustee usually abandons property when the property holds little to no equity; the costs of collecting money from the property or litigation will exceed the amount of money to be recovered; or preserving the property would burden the bankruptcy estate.