Property that is surrendered or was not protected under the bankruptcy code exemptions is fair game for the bankruptcy Trustee. Once a debtor has filed bankruptcy, his estate becomes that of the bankruptcy court and the bankruptcy Trustee.
At that time, the Trustee determines if there is any value or potential value in any of the assets of a bankruptcy case. If the property proves to be worthless, with no beneficial value, or the value is not worth the hassle of selling the property, the Trustee will submit a motion to abandon the property. Once an asset is abandoned in bankruptcy, it is released from the protection of the bankruptcy automatic stay. At this point, the property may be sold, transferred, or used by the debtor or other parties of interest, such as the mortgage company. Abandonment can be automatic if a Final Decree is issued on a case which officially closes a bankruptcy (this is after the discharge is issued.) A final decree labels the property for abandonment because the case has been closed and the Trustee has issued a non-distribution of assets.
To better illustrate, lets take a look at a common example. A debtor surrenders a home in bankruptcy and must forfeit a piece of land that he was not able to protect with his exemptions. The Trustee reviews the estate and decides to hire a real estate agent. The real estate agent explains that due to the market’s condition, the land would take over a year to sell, but the house may sell in 6 months. The Trustee decides to put both on the market for 6 months. Debtor receives a discharge but not a Final Decree. The time passes and the Trustee has not even received an offer on the land or house. To cut his losses, he decides to file a Motion to Abandon on the land and notifies the creditors there are no assets to be disbursed. The debtor receives a Final Decree a month later. The house is considered abandoned by the receipt of the Final Decree and the land becomes the debtor’s once again. The mortgage company sets up foreclosing proceedings on the home and months later, the home forecloses and the debtor’s name is removed from the deed.
The bottom line is, when a Trustee abandons property they are notifying the bankruptcy court, creditors and the bankruptcy debtors that they no longer have an interest in the property.