Can a chapter 7 debtor sell his home under Section 363 if the trustee has not yet abandoned it? The answer is “no,” according to Bankruptcy Judge Martin Glenn of Manhattan.
What if the trustee has said the home has no value for the estate and she intends to abandon it? Can the debtor then sell the property under Section 363? The answer is still “no,” Judge Glenn said.
Then how can the debtor preserve his equity? That’s what Judge Glenn explained in his Nov. 20 opinion.
A homeowner properly scheduled his home, which was subject to a $770,000 mortgage that was in foreclosure. To avoid foreclosure and preserve some equity for himself, the homeowner filed a motion for authority to sell under Section 363, having found a buyer who had signed a contract to purchase the home for about $900,000. In New York, the debtor had a $165,550 homestead exemption that left no value for the estate. Two appraisals also showed no value for the estate.
The chapter 7 trustee had said at the Section 341 meeting she would abandon the home as having no value for the estate. She later filed a report of no distribution but had neither closed the case nor formally abandoned the property.
When the debtor’s motion to sell came on for hearing, the trustee objected, contending that she alone had the power of sale.
Judge Glenn agreed but laid out extra steps the debtor could take to sell the home and preserve his exempted equity.
Judge Glenn cited black letter law for the proposition that only a chapter 7 trustee has authority to sell property that has not been abandoned, thus dispensing with the idea that a debtor could sell property even if everyone had proper notice. The judge therefore denied the debtor’s Section 363 motion to sell.
The trustee was “certainly correct,” Judge Glenn said, that “the property should be abandoned.” The fact remained, though, that the trustee had not taken any of the four steps in Section 554 that would result in formal abandonment and thereby give the debtor power to sell.
Judge Glenn said the trustee could have facilitated matters by filing a notice of intent to abandon. Since she had not, the judge accelerated the debtor’s motion to compel abandonment.
Once the property was formally abandoned, Judge Glenn said the debtor “can sell the property outside of bankruptcy, with all expenses of sale paid outside of bankruptcy.”
“What the debtor cannot do,” Judge Glenn said, “is sell the property under Section 363(b).”