Source: http://kirschenbaumesq.com/article/-in-re-frederick-schoenewerk-and-lorrie-a-schoenewerk-d-b-a-collision-concepts-corp-d-b-a-olympic-collision-corp-debtors-case-no-802-82063-288-chapter-7-united-states-bankruptcy-court-for-the-eastern-district-of-new-york-304-br-59-2003-
Timestamp: 2019-04-25 09:50:42+00:00

Document:
interest in debtors' interest in their residence denied without prejudice.
interest in their residence. The trustee objected to the motion.
trustee's withdrawal of the report rebutted the presumption in Fed. R.
Bankr. P. 5009 that the estate had been fully administered.
OUTCOME: The court denied the debtors' motion.
JUDGES: Stan Bernstein, Bankruptcy Judge.
$ 123,593. The debtors also claimed a joint household exemption of $ 20,000.
listed the property for sale with a local real estate broker.
their residence for sale through a broker at an asking price of $ 249,900.
interest in the property remained vested in the trustee by operation of law.
n1 The asking price was originally $ 265,000.
date. Proof of claims are now due by September 3, 2003.
reversed by the district court, Mendelsohn v. Ozer (In re Ozer), 241 B.R.
exercise of her discretion, but later reversed as an abuse of discretion.
n4 This case was cited in In re Sweeney, 275 B.R. 730, 735 (Bankr. W.D. Pa.
required under Fed. R. Bankr. P. 9011 before signing his name to a pleading.
Lumber, Inc., 655 F.2d 786, 791-792 (7th Cir. 1981).
the closing of the case.
1997 U.S. Dist. LEXIS 5877, *9 (S.D.N.Y. 1997), the court stated that ". . .
In further support of their argument, the debtors refer to Fed. R. Bankr. P.
that the estate has been fully administered if no timely objection is filed.
that the panel trustees moved their assigned cases to an expedited closing.
n8 11 U.S.C. § 704(9).
eliminates one round of paper.
pursuant to 28 U.S.C. § 586."
the estate upon the filing of the chapter 7 petition by operation of law.
Hart, 76 B.R. 774, 776 (Bankr. C.D. Cal. 1987).
reversed on other grounds, In re Korvettes, 67 B.R. 730 (S.D.N.Y. 1986).
absence of an abandonment hearing and formal order of the bankruptcy court."
(a) Notice of proposed abandonment or disposition; objections; hearing.
abandonment or the bankruptcy proceeding was closed."
say that merely listing a residence for sale does not constitute "reliance."
without notifying the trustee in the first place.
n14 In In re Popa 218 B.R. 420, 428 (Bankr. N.D. Ill. 1998), aff'd, Popa v.
the debtors may file objections.
priced" property has no more than six rooms and one of the "comparables"
not prepared by a licensed and disinterested appraiser to begin with.
the right or duty to correct any temporary misjudgment of realizable value.
the only apparent asset of any nonexempt value is the debtors' residence.
noticed to the debtor and the debtors' counsel.
their residence in order to induce him to file a no-asset report. Mr.
lower-middle income residential area from a base of $ 145,000 to $ 155,000.
45,000 or perhaps considerably more in net proceeds of sale.
subsidize the purchase of replacement homes of chapter 7 debtors.
the trustee's commission or his counsel's final fees.
under this title . . ."
June 16, 2003, DecidedDISPOSITION: [**1] Debtors' motion for expedited determination thatchapter 7 trustee has abandoned or can be deemed to have abandoned estate'sinterest in debtors' interest in their residence denied without prejudice.CASE SUMMARYPROCEDURAL POSTURE: The debtors, a married couple, filed a motion for anexpedited determination that the Chapter 7 bankruptcy trustee had abandonedor could be deemed to have abandoned the estate's interest in the debtors'interest in their residence. The trustee objected to the motion.
OVERVIEW: The debtors' petition indicated that their equity in their primaryresidence was less than the joint household exemption to which they wereentitled. In support of their valuation of the property, the debtorssubmitted a market survey prepared by a licensed real estate broker. Thetrustee filed a no-asset report. Thereafter, the debtors listed theresidence for sale at a much higher price than the fair market value statedin their petition. When the trustee learned of the listing agreement and theasking price, he notified the debtors that the no-asset report was beingwithdrawn. The debtors contended that the trustee's filing of the no-assetreport should be deemed to be an abandonment of the estate's interest in thedebtors' interest in the residence and that they were entitled to rely onit. The court held that the filing of the no-asset report did not constitutean abandonment under 11 U.S.C.S. § 554(a). The trustee did not take steps toabandon the property as provided in Fed. R. Bankr. P. 6007(a). Moreover, thetrustee's withdrawal of the report rebutted the presumption in Fed. R.Bankr. P. 5009 that the estate had been fully administered.
OPINION: Issue: On June 5, 2003, Frederick and Lorrie A. Schoenewerk(debtors) filed a motion for an expedited determination that KennethKirschenbaum, Esq., the chapter 7 trustee (trustee), has abandoned or can bedeemed to have abandoned the estate's interest in the debtor's interest intheir residence located at 255 Locust Drive, Rocky Point, NY 11788(property). In reply, the trustee has objected to the motion; therefore, theburden of proof shifts back to the moving party. Upon reviewing thepleadings and the docket of this Court, the Court has decided to deny thedebtors' motion without hearing because it is entirely without merit on itsface.
On March 25, 2002 (Petition Date), the debtors filed a joint petition forrelief under chapter 7 of the Bankruptcy Code. In their schedules of assetsand liabilities, they stated under oath that the fair market value of theirprimary residence was $ 140,000, subject to a first mortgage indebtedness of$ 123,593. The debtors also claimed a joint household exemption of $ 20,000.The debtors' [**2] valuation of their residence was allegedly corroboratedby a "market survey" prepared by a licensed real estate broker, which isattached to their motion. The broker placed a value on the property ofbetween $ 145,000 and $ 155,000. The debtors allege that they mailed thetrustee a copy of the broker's price opinion, including the data oncomparable sales allegedly supporting the opinion. They also point out thatthe trustee had a full opportunity to examine the debtors under oath at thesection 341 meeting of creditors, and they fully co-operated in respondingto any of his concerns. The debtors further allege that the trustee wasapparently satisfied that there was no material benefit to be gained by thetrustee's selling their residence through a broker, and that his filing of aNo-Asset Report (NDR) can only be deemed to be an abandonment of theestate's interest in their interest in the residence. Moreover, the debtorsallege that they had a right to rely upon the trustee's "impliedabandonment" and that their reliance is evidenced by the fact that they havelisted the property for sale with a local real estate broker.
n2 The Rescission was filed by the trustee on June 5, 2003 and the Trustee'sNotice of Assets and Request for Notice to Creditors was filed the samedate. Proof of claims are now due by September 3, 2003.
n3 Under section 725 of the Bankruptcy Code, the trustee bears theresponsibility of determining if and how to dispose of property of theestate.
As his entire legal authority, the debtors' counsel relied wholly on justone opinion from another bankruptcy judge in this district that by filing ano-asset report, the trustee can be deemed to have abandoned any interest ofthe estate in the debtor's interest in real or personal property. In reOzer, 208 B.R. 630 (Bankr. E.D.N.Y. 1997). Any opinion issued by a colleagueof this judge would ordinarily be entitled to very serious consideration outof respect to one's peers. However, the salient fact is the decision wasreversed by the district court, Mendelsohn v. Ozer (In re Ozer), 241 B.R.503 (E.D.N.Y. 1997). n4 Moreover, as the trustee points out in hisresponsive memorandum, the posture of the Schoenewerk case makes it fareasier to decide the contested matter in favor of the trustee. In the Ozercase, the Clerk of the Court had already closed the chapter 7 estate, and ittook the trustee a full eighteen months before filing his motion to reopenthe closed case. That motion was denied by the Bankruptcy Court within theexercise of her discretion, but later reversed as an abuse of discretion.
n5 The debtors' counsel could have ascertained this protocol in a two-minutephone call to the Clerk's office, but he preferred to speculate about thereasons for this case's remaining open (at the cost of denigrating theClerk's office) rather engaging in the most minimal form of due diligencerequired under Fed. R. Bankr. P. 9011 before signing his name to a pleading.
Section 554(a) [**6] expressly authorizes the trustee to file a motion onnotice and hearing to abandon any nonexempt asset that is burdensome orinconsequential value or benefit to the estate. Here the trustee did not somove, so section (a) is inapplicable. n6 Section 554(b) authorizes a [*62]party in interest to file a motion on notice and hearing for the Court, inthe exercise of its discretion, to order the trustee to abandon any assetthat meets the criteria set forth in subsection 554(b). Even assuming thatthe debtors' pending motion should be deemed to fall under section (b),although it is not pled in those terms, section (b) would not be applicablebecause the debtors claim that there is substantial value in the nonexemptequity in their residence. Subsection (c) provides that unless the courtorders otherwise, any property that is scheduled by the debtors "nototherwise administered at the time of the closing of a case is abandoned tothe debtor . . ." This subsection also does not apply because the case hasnot been closed.
n6 And even an asset, formally abandoned, may be reclaimed by the chapter 7trustee for the benefit of creditors. "Abandonment may be revoked, however,if the debtor concealed information from the trustee, or if the trustee didnot possess sufficient information about the claim." In re Lintz W. SideLumber, Inc., 655 F.2d 786, 791-792 (7th Cir. 1981).
If Congress intended to treat the filing of a no-asset report as adispositive legal event with respect to any abandonment issue, it could haveso provided, but it did not, and no negative inference may be drawn from thestructure of this subsection to support the debtors' position. n7 Indeed,subsection (d) makes the redundant point, to avoid any misunderstanding onanybody's part, that "Unless the court orders otherwise, property of theestate that is not abandoned under this section and that is not administeredin this case remains property of the estate." Thus, on this narrow legalissue, the debtors have completely ignored the plain language of the Codethat requires either an affirmative act of the trustee to abandon an assetof the estate under subsection (a) or an implied act of the trustee toabandon an asset that is not administered, which becomes effective only uponthe closing of the case.
n7 "A failure to pursue a particular claim by a trustee . . . does notamount to abandonment of the claim." In re Eagle Enters., 265 B.R. 671, 679(E.D. Pa. 2001); In Polvay v. B.O. Acquisitions (In re Betty Owens Sch.),1997 U.S. Dist. LEXIS 5877, *9 (S.D.N.Y. 1997), the court stated that ". . .inaction alone, . . . is insufficient to constitute a section 554(a)abandonment."
The debtors cited no case construing this Rule and have failed completely tounderstand the purport of this Rule. First of all, Rule 5009 does nothingother than to restate section 350(a), to add a minor modification to specifya thirty-day period during which the United States trustee or any party ininterest may file an objection to close a case, and to add a presumptionthat the estate has been fully administered if no timely objection is filed.
With this as the institutional background, it becomes understandable thatthis Rule is intended to address two governmental entities and not partiesin interest, namely, the Clerk of the Bankruptcy Court and the United Statestrustee. This Rule sets up a "default rule" that authorizes the Clerk toclose a case, absent other unexpressed conditions, when a thirty-day periodhas run after the trustee files a no-asset report with the Clerk and theUnited States trustee and the United States has not filed an objection thatwould bring the case back to the attention of the judge assigned to thecase. If there were no such default rule, the only way the Clerk's officecould ascertain whether the United States trustee was fully satisfied withthe chapter 7 trustee's administration of the case would be to insist thatthe United States trustee take the additional affirmative act of sending inperiodic reports advising the Clerk to close a scheduled list of numberedchapter 7 cases. That practice would impose an intolerable burden on theUnited State trustee's severely limited support staff. n9 The default ruleeliminates one round of paper.
n9 The 1991 Advisory Committee Note to Rule 5009 states, "This amendmentfacilitates the United States trustee's performance of statutory duties tosupervise trustees and administer cases under chapters 7, 12, and 13pursuant to 28 U.S.C. § 586."
Why should the Clerk care whether a case is closed or not? The explanationmay not be readily apparent to anybody on the outside of the bankruptcyadministrative system looking in. Of course, as with any government agency,statistics are maintained by the Administrative Office of the United StatesCourts on the rate at which each Clerk's office closes cases. Thesestatistics are reported to the Congress as an essential part of the annualbudgeting process for the operation of the courts, and for thedistrict-by-district allocation of that appropriation by the AdministrativeOffice. Apart from statistics and budgeting, one of the most importantadministrative functions of the Clerk is to collect filing fees in eachbankruptcy case. It is only the Clerk, and not the United States trustee,who has the institutional duty of disbursing a standard fee to the paneltrustee for "administering" a no-asset chapter 7 case. n10 The Clerk cannot,however, disburse that standard fee until the case is actually closed asevidenced by an entry by the Clerk in the docket of that case. Then thebalance of the filing fee has to be periodically remitted to the UnitedStates Treasury as a revenue measure. [**12] [*64] Thus, thebureaucratic function of Rule 5009 has really has nothing to do with thedebtor. n11 For this reason, Rule 5009 cannot be construed as granting anysubstantive right or interest to the debtor in any property that came intothe estate upon the filing of the chapter 7 petition by operation of law.
n10 11 U.S.C. § 330(b)(1). "Chapter 7 trustees have an incentive toadminister no asset cases promptly: they are not paid until after theirservices are rendered, . . . and the case is ready to be closed." In reHart, 76 B.R. 774, 776 (Bankr. C.D. Cal. 1987).
n11 "Moreover, under Section 350 and Rule 5009, the final act ofadministration could very well be a purely ministerial act of which thedebtor and other parties would receive no notice." Korvettes v. SanyoElectric (In re Korvettes), 42 B.R. 217, 221 (Bankr. S.D.N.Y. 1984),reversed on other grounds, In re Korvettes, 67 B.R. 730 (S.D.N.Y. 1986).
Rule 5009 has to be read as creating [**13] a rebuttable presumption. Thetrustee has rebutted the presumption by averring that he was eitherintentionally misled by the debtors or their agent, the prospective broker,or that if he made an earlier misjudgment, then he is obligated to withdrawhis no-asset report and to administer the asset in question as soon as hehas learned of his earlier misjudgment. n12 The Rule impliedly leaves it tothe discretion of the Court to determine what kind of showing a trustee hasto make before he can burst the bubble of presumption. The Court is nowsatisfied that the trustee has burst that bubble. As a final considerationon this point, to the extent that the construction that the debtors' counseloffers for Rule 5009 is inconsistent with the express substantive provisionsof section 554, it has long been a fundamental postulate in bankruptcy lawthat a Federal Rule of Bankruptcy Procedure cannot be construed to trump asubstantive provision of the Code, and so counsel's argument fails on thispoint as well.
n12 The Court in Vonderahe v Polaniecki, 276 B.R. 856, 859-860 (S.D. Ohio2001) stated that the "trustee's prior Interim Report listings of certainassets as having zero value did not constitute abandonment of assets inabsence of an abandonment hearing and formal order of the bankruptcy court."
n13 And in a case decided under the former Bankruptcy Rules, the court in Inre Teltronics Services, Inc., 39 B.R. 446, 453-454 (Bankr. E.D.N.Y. 1984)stated that "all causes of action . . . vested in the trustee . . . Theycontinued to be the property of the estate until the Court authorized theirabandonment or the bankruptcy proceeding was closed."
It is not necessary to address the debtors' reliance argument other than tosay that merely listing a residence for sale does not constitute "reliance."Title to the property has not changed, and there are no other factssuggested by the debtors that begin to approach "reliance." Even stretchingtheir argument to the fullest, the Court does not perceive that their"reliance" was reasonable when looking at this case as a whole. n14 Thedebtors never [*65] had the authority to list their residence for salewithout notifying the trustee in the first place.
n14 In In re Popa 218 B.R. 420, 428 (Bankr. N.D. Ill. 1998), aff'd, Popa v.Peterson, 238 B.R. 395 (N.D. Ill. 1999), the court denied the debtor'smotion to compel the trustee to abandon property because it found that"there is substantial equity in the Property, which, when sold, will permita substantial dividend to creditors. The Property is therefore notburdensome to the estate, but is of significant value and benefit to theestate."
These debtors have scheduled very substantial unsecured claims that havebeen liquidated and are not subject to any bona fide dispute. It is a fairpresumption that several creditors with allowable claims will file theirproofs of claim upon receipt of a new notice of discovery of assets, andthose with claims described as disputed or contingent by the debtor willalso file their proofs of claim against the debtors, to which the trustee orthe debtors may file objections.
In this case, the adversary proceeding filed by Mr. Klausing took until May30, 2003 to be tried, and the plaintiff has been directed to file proposedfindings of fact and conclusions of law by June 13, 2003, with the debtorsgiven an opportunity to file their proposed counter findings of fact,conclusions of law, and supporting memorandum of law by June 27, 2003. Underthese circumstances, this case may remain open for the next few years ifeither party to the adversary files a notice of appeal of any judgment ororder of this Court.
Independent of the trustee's opposition to the debtors' motion, this Courthas carefully reviewed the "market survey" that purportedly the trusteerelied upon to the prejudice of [**17] the creditors of this estate. (TheCourt will not demean the debtors by suggesting that it appears that theyinstructed the broker concerning the range of value that would be useful fortheir purposes.) Nevertheless, a mere perusal of the "market survey" showson its face that it was not prepared by an independent fee appraiser with noeconomic interest in the sale of the property or any prospective businessrelationship with the debtors. The enclosure letter explicitly states thatthe "surveyor" was hoping for the debtors to list their residence with themfor resale. And even this Court's preliminary review of each of the"comparables" shows them to be materially misleading, based upon the datesof sale and the attributes of each of the three comparable properties. The"subject property" has three bedrooms and two baths, an eat-in kitchen, afully finished basement, seven rooms, and a garage. Every other "higherpriced" property has no more than six rooms and one of the "comparables"only has one bathroom. In addition, three of the four "comparables" showsales dates of not less than ninth months before the date of the "marketsurvey." Assuming that all comparables continued to appreciate [**18] fromtheir respective dates of closing to the date of this market survey, thenthose comparables would materially understate their value. It would bepointless to waste the time of this Court to conduct an evidentiary hearingwith respect to the "market survey." On its face, this "market survey" bearsvery little probative value, and is likely to be inadmissible because it wasnot prepared by a licensed and disinterested appraiser to begin with.
In addition, this Court has to rely upon the combined legal and businessexpertise of the panel trustee and the proper exercise of his fiduciary dutyon behalf of the creditors of the estate. If for any reason, the trustee hasnow determined that he may have been misled by the debtors or their agent ininducing him to file a no-asset report, this case remains open and he hasthe right or duty to correct any temporary misjudgment of realizable value.[*66] There are very substantial unsecured liabilities in this case, andthe only apparent asset of any nonexempt value is the debtors' residence.The debtor has presented absolutely no proposed purchase and sale agreementfor the property with an unrelated third party, and as Mr. Schoenewerkhimself [**19] testified within the past two weeks, this is the most activeseason in this market. The debtors can prove no material reliance upon thetrustee's initial no asset report. And if the trustee determines that themost expeditious practice is to list this property with an experienced realestate auctioneer, as many other trustees do under just these circumstances,then this is likely to lead to the highest price to be paid for theproperty. But if he wants to list it with a licensed broker in whom he hasconfidence, then that is again up to him, and either application will benoticed to the debtor and the debtors' counsel.
The Court does not find it necessary under the totality of the facts andcircumstances to conduct an evidentiary hearing to determine whether thedebtors or their prospective real estate agent did or did not deliberatelymislead the chapter 7 trustee as to the then "present fair market value" oftheir residence in order to induce him to file a no-asset report. Mr.Schoenewerk has already testified that he cannot take any more time off fromwork at this new job in Virginia, nor can he bear the travel costs, letalone pay for the litigation defense costs. As the defendants' [**20]counsel represented within the past two weeks, Mrs. Schoenewerk's presenthealth and emotional condition will be jeopardized if she has to participateactively in preparing for and testifying in any contested hearing orproceeding.
Instead the Court is prepared to rely upon its own situation sense toconclude that it simply defies credulity to argue that this property wasproperly valued in the schedules, and that within one year, the property hasbenefitted by market appreciation at least $ 85,000 to $ 95,000 in alower-middle income residential area from a base of $ 145,000 to $ 155,000.That would be an increase of value for a modest single family residence inone year of approximately 60%. Even if the property were to sell for $205,000, and the debtors were permitted their $ 20,000 joint homesteadexemption, there would still be an additional $ 45,000 in gross proceeds,before deducting closing costs to distribute to unsecured creditors. Itwould be a breach of the trustee's overriding fiduciary duty to maximize thedistribution to holders of allowed unsecured claims to walk away from $45,000 or perhaps considerably more in net proceeds of sale.
This situation is analogous [**21] to a motion to vacate an order orjudgment of the Court based upon a mistake or in order to avoid a palpableinjustice under Fed. Bankr. R. Pro. 9024. n15 At this point in this chapter7 case, it is obvious that the debtors want to relocate from thisjurisdiction to Virginia without incurring further litigation costs or any further disruption to their family life, and that no legitimate equitablepurpose would be served in granting the debtors the relief they now seek --to take the net proceeds of this sale to the prejudice of the creditors ofthis estate. The only interest they have in the property under New YorkState exemption law is the $ 20,000; bankruptcy law is not intended tosubsidize the purchase of replacement homes of chapter 7 debtors.
n15 If the trustee's performance was lacking in sufficient diligence, thenthe remedy for that negligence, if any, is surely not to punish theunsecured creditors of this estate, but to make a downward modification inthe trustee's commission or his counsel's final fees.
So now that the Court has established the uncontroverted fact that this caseremains open and the reasons for this status, there is no legal or equitablebasis for the debtors to allege that by virtue of section 554 or Rule 5009,the estate's interest in the property has been abandoned. Based upon theseindisputable facts alone, including those in the record of this case forwhich this Court can take judicial notice, the debtors' motion is deniedwithout prejudice.
The Court strongly urges the trustee and the debtors to save the estate andthemselves the costs of protracted litigation by exploring a consensualresolution of this matter, and the Court is willing to lend its good officesto assist the parties in exploring the range of alternatives. In everydispute over dollars, well-advised parties should be able to reach asatisfactory resolution over the allocation of dollars. Since the debtorshave already decided to sell the property and move out of the state beforethe beginning of the next school year, there should be no emotional issuesof attachment to this property that should cloud the proper exercise ofreason. Of course, the parties can only negotiate [**23] in a constructivemanner when a firm selling price has been established and the sale has beenapproved by the Court after notice and hearing. It goes without saying thatit is the duty of the debtors to assist the trustee n16 and his agents inmaking this property available for inspection by prospective purchasers andensuring that upon receiving a call from the trustee or his agent in notless than twenty-four hours before any showing that the property will bemade presentable to prospective purchasers. It will be in everybody'sinterest to co-operate to the fullest in order to make this sale as leastdisruptive as possible, and the season is already well underway.
n16 11 U.S.C. § 521(3) states that the debtor shall "cooperate with thetrustee as necessary to enable the trustee to perform the trustee's dutiesunder this title . . ."

References: v. 
 § 704
 § 586
 v.

 § 554
 v. 
 v. 
 § 586
 § 330
 v. 
 § 521