Opinion ID: 4186437
Heading Depth: 3
Heading Rank: 2

Heading: The abandonment issue

Text: Jahn’s principal argument on appeal is that the Burkes lacked standing to compel the trustee to abandon their residence. He argues that the Burkes were not “parties in interest” with regard to the residence because it was actually property of the estate, and that, to the extent they were “parties in interest” at all, Jahn’s tendering of cash for the Burkes’ homestead exemption extinguished any standing that they might otherwise have had. We conclude that these contentions lack merit. When a debtor declares bankruptcy, an estate is created. See 11 U.S.C. § 541(a). The estate normally includes the debtor’s real property. Id. A Chapter 7 trustee is responsible for liquidating the estate and using the proceeds to satisfy the debtor’s unsecured creditors. See generally 11 U.S.C. §§ 704 & 726. This power to liquidate property of the estate, however, “will not be exercised unless it is made to appear that there is a fair prospect of the property being sold for substantially more than enough to discharge the lien or liens upon it.” Hoehn v. McIntosh, 110 F.2d 199, 202 (6th Cir. 1940). The trustee, in other words, must generally abandon property that does not possess substantial equity. See In re Feinstein Family P’ship, 247 B.R. 502, 507 (Bankr. M.D. Fla. 2000) (“It is now almost universally recognized that where the estate has no equity in a property, abandonment is virtually always appropriate[.]”). No. 16-6603 Jahn v. Burke et al. Page 5 This common-law rule was codified in 1978 as part of the Bankruptcy Code, which provides in relevant part that, “[o]n request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.” 11 U.S.C. § 554(b). A “party in interest” refers, for example, to “anyone who has a practical stake in the outcome of a case.” In re Morton, 298 B.R. 301, 307 (B.A.P. 6th Cir. 2003) (quoting In re Cowan, 235 B.R. 912, 915 (Bankr. W.D. Mo. 1999)). As has been noted by a bankruptcy court in Indiana, “the debtor is, in a very real sense, the beneficiary of abandonment” because the debtor will get to keep the property (subject to the mortgage loan) if the trustee is ordered to abandon it. In re Drost, 228 B.R. 208, 210 (Bankr. N.D. Ind. 1998). The Burkes were therefore “parties in interest” with respect to the abandonment of their residence because, if they won their motion, they would get to keep their property. Such an interest is as “practical [a] stake in the outcome,” Morton, 298 B.R. at 307, as a party could have. The Burkes thus had standing to pursue a motion to compel abandonment. Jahn seeks to avoid this logical conclusion with two arguments. Citing no authority in support of his first argument, he contends that because he tendered the Burkes their homestead exemption—an offer that they did not accept—the Burkes lacked any “legal or possessory interest” in their residence. This argument lacks merit. A homestead exemption is a statutory remedy for debtors that gives them a certain sum of money (in this case, $7,500) to provide them with a “fresh start” after the loss of their property. See Rousey v. Jacoway, 544 U.S. 320, 322, 325 (2005). The homestead exemption is not, however, the exclusive remedy for a debtor facing the loss of his or her residence. An alternative remedy is for the debtor to seek abandonment by the trustee under 11 U.S.C. § 554(b) if the property is “of inconsequential value and benefit to the estate.” If Jahn could extinguish the abandonment remedy by simply tendering the homestead exemption, then he could effectively nullify 11 U.S.C. § 554(b). Such an argument overlooks relevant caselaw and the text of the abandonment statute. No. 16-6603 Jahn v. Burke et al. Page 6 Jahn’s second argument is that the Burkes lacked Article III standing to proceed on their motion to compel abandonment. To have standing, a party must have suffered an injury-in-fact, that injury must have been caused by the defendant, and the injury must be redressable by a favorable ruling. Phillips v. DeWine, 841 F.3d 405, 414 (6th Cir. 2016) (citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992)). A sale of the residence (and the eviction that Jahn sought) would constitute such an injury, caused by Jahn’s actions, and is redressable by a favorable ruling on the motion to compel abandonment. The cases that Jahn cites in support of his argument to the contrary concern other matters entirely, such as the lack of a debtor’s standing to assert a cause of action that was clearly the property of the estate. See, e.g., In re Jones, 396 B.R. 638, 646–48 (Bankr. W.D. Pa. 2008) (holding that the debtor lacked standing to bring a claim against the Internal Revenue Service for the improper assessment of a tax deficiency because the cause of action was the property of the estate and had not been abandoned to the debtor). Nor does the debtor have standing to make a request for the abandonment of another’s property. See In re Miller, 302 B.R. 705, 711 (10th Cir. B.A.P. 2003) (holding that the debtor had no standing to compel the trustee to abandon production equipment and other property that concededly belonged to third parties). In such a case, the debtor has suffered no injury and a ruling in the debtor’s favor would not accrue to his benefit. The abandonment of the debtor’s residence by the trustee, on the other hand, generates an immediate material benefit to the debtor, and the sale of that property would surely constitute an injury-in-fact. Jahn has cited no case to the contrary, and we have found none. Indeed, Jahn himself cites a number of cases that assume without discussion that debtors are “parties in interest,” and thus have standing to compel abandonment. See, e.g., In re Heflin, 215 B.R. 530, 532 (Bankr. W.D. Mich. 1997) (ruling on a debtor’s motion to compel abandonment of a 40-acre parcel, noting that the only issue before the court was whether the property was “of inconsequential value and benefit to the estate”). In short, this case clearly falls within the scope of the abandonment statute. The Burkes, being parties in interest to the estate’s property, seek to have the trustee abandon their residence because, although it is of inconsequential value to the estate’s unsecured creditors, it has real No. 16-6603 Jahn v. Burke et al. Page 7 value to the Burkes. We therefore reject the trustee’s position and conclude that the Burkes had standing to compel the trustee to abandon their residence.