In re Blasingame

The Debtors filed a chapter 7 bankruptcy petition in 2008. Creditor CJV was granted derivative standing on behalf of the bankruptcy estate and sought a declaratory judgment that personal property located at the Debtors' home was property of the bankruptcy estate. The Debtors asserted that the personal property is held in trust or belongs to other people, such as their children and that the complaint was barred by the statute of limitations. After discovery was completed, the Trustee moved to abandon the action, arguing that, even if the personal property was property of the bankruptcy estate, it was only worth approximately $200,000, as opposed to more than one million dollars as CJV had asserted and that the IRS had a tax lien in far excess of its value, so that the litigation could result in a loss to the estate. CJV asserted that the cause of action was no longer property of the bankruptcy estate. The bankruptcy court granted the motion for abandonment and dismissed the adversary proceeding. The Bankruptcy Appellate affirmed. The action remained property of the estate; Section 554(a) of the Bankruptcy Code allows a trustee, after notice and a hearing, to abandon property that is of inconsequential value and benefit to the estate. The Trustee’s determination was based on sound business judgment and within his discretion. View "In re Blasingame" on Justia Law