Adopting the broader, “plain language” interpretation of Section 554(c), District Judge Jill N. Parrish of Salt Lake City affirmed a decision by Bankruptcy Judge Joel T. Marker and held that an asset is abandoned if it is not administered by the trustee and was sufficiently disclosed somewhere in the debtor’s schedules.
The husband and wife debtors filed a chapter 7 petition in 2011 and received their discharges. In their schedule of assets under Section 521(a)(1)(B)(i), they listed a 49% ownership of a limited liability company that we shall refer to as the operating company.
The trustee closed the case without administering the assets of the operating company. Under Section 554(c), the operating company was theoretically abandoned to the debtors when the trustee closed the case.
Receiving an anonymous tip four years later about the possible failure to disclose assets, the trustee reopened the case. In the ensuing investigation, the trustee learned that the debtors did not own the operating company directly. Rather, the couple owned a limited liability company we shall refer to as the holding company.
The holding company, not the debtors, owned the 49% interest in the operating company. Significantly, the debtors did not schedule the holding company among their assets under Section 521(a)(1)(B)(i). However, the debtors had mentioned the holding company several times elsewhere in their schedules, as we shall discuss later.
The trustee filed a motion where, in substance, he sought a declaration that the holding company and its ownership of the operating company were not automatically abandoned because the debtors had not listed the holding company in their schedule of assets under Section 521(a)(1)(B)(i).
Bankruptcy Judge Marker denied the trustee’s motion, concluding that the holding company had been sufficiently disclosed to result in abandonment automatically.
The trustee appealed, but District Judge Parrish affirmed in an opinion on May 19, saying that Judge Marker’s “interpretation of the statute was correct.”
The result turned on a split among the lower courts on Section 554(c). The majority hold that an asset is automatically abandoned only if it is listed in the schedule of assets under Section 521(a)(1)(B)(i). Those courts believe that an asset is not automatically abandoned if it is listed elsewhere in the schedules and statement of affairs.
Judge Parrish adopted the broader, “plain language” interpretation of Section 554(c) embraced by the minority. However, she said that the trend in recent years among bankruptcy courts and appellate panels “has been toward adopting this plain language reading of the statute.”
Section 554(c) says that an asset is “abandoned to the debtor” if it was not administered before the closing of the case and if it was “scheduled under section 521(a)(1) of” the Bankruptcy Code.
The majority of courts add a gloss to the section by requiring that the asset must have been listed on the schedule of assets under 521(a)(1)(B)(i). Disclosing the asset elsewhere in the schedules will not result in automatic abandonment, they hold.
Like Bankruptcy Judge Marker, District Judge Parrish took the plain-meaning approach and interpreted the section more broadly to allow abandonment if the asset was disclosed anywhere under Section 521(a)(1). Had Congress intended the more narrow reading, she said, Congress would have drafted the statute to “specify that the scheduling must occur under 521(a)(1)(B)(i).”
In terms of policy, the broader approach is the better reading. If the asset were required to appear only on the schedule of assets, Judge Parrish said that the wrong placement or a “typographical error” would deprive the debtor of abandonment.
Having settled on statutory interpretation, Judge Parrish turned to the question of whether the holding company was sufficiently disclosed so that the trustee could “fulfill his duty to investigate the assets of the estate.” On that issue, she said the debtors had disclosed the holding company “repeatedly, across multiple documents filed under Section 521(a)(1).”
Judge Parrish said the debtors had disclosed the holding company (1) in question 18 on the statement of financial affairs as a business owned within five years; (2) by giving their home address as the address for the holding company; (3) by filing a six-month profit-and-loss statement for the holding company under Section 521(a)(1)(B)(iv); (4) by disclosing their 49% ownership interest in the operating company when the holding company was the actual owner; and (5) by listing the holding company as a source of income on the means test.
Had the trustee “made any effort to investigate” the operating company, Judge Parrish said, he would have discovered the debtors’ ownership of the holding company. In sum, she said the debtors’ “disclosure of [the operating company] on their personal property schedule was the functional disclosure of their interest in” the holding company.
Judge Parrish upheld the ruling by Judge Marker because the debtors’ “various Section 521(a)(1) filings provided [the trustee] with enough information to identify and investigate” the holding company.
Adopting the broader, “plain language” interpretation of Section 554(c), District Judge Jill N. Parrish of Salt Lake City affirmed a decision by Bankruptcy Judge Joel T. Marker and held that an asset is abandoned if it is not administered by the trustee and was sufficiently disclosed somewhere in the debtor’s schedules.
The husband and wife debtors filed a chapter 7 petition in 2011 and received their discharges. In their schedule of assets under Section 521(a)(1)(B)(i), they listed a 49% ownership of a limited liability company that we shall refer to as the operating company.
The trustee closed the case without administering the assets of the operating company. Under Section 554(c), the operating company was theoretically abandoned to the debtors when the trustee closed the case.
Receiving an anonymous tip four years later about the possible failure to disclose assets, the trustee reopened the case. In the ensuing investigation, the trustee learned that the debtors did not own the operating company directly. Rather, the couple owned a limited liability company we shall refer to as the holding company.
The holding company, not the debtors, owned the 49% interest in the operating company. Significantly, the debtors did not schedule the holding company among their assets under Section 521(a)(1)(B)(i). However, the debtors had mentioned the holding company several times elsewhere in their schedules, as we shall discuss later.