312-263-2200

Section 554(c) of the Bankruptcy  Code provides that, unless the court orders otherwise, “any property scheduled under section 521(a)(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor.”  Surprisingly, courts are split on how to interpret this provision, in particular, what does it mean to be “scheduled under Section 521(a)(1)”.  Some courts apply a narrow reading to this section, opining that “scheduled under Section 521(a)(1)” refers specifically to the schedule of assets and liabilities that debtors are required to file under Section 521(a)(1)(B)(i).  In re Schmid, 54 B.R. 78, 80 (Bankr.D.Or.1985), In re Fossey, 119 B.R. 268, 272 (D.Utah 1990) and In re McCoy, 139 B.R. 430, 432 (Bankr.S.D.Ohio 1991).  Other courts have interpreted Section 554(c) more broadly to mean Section 521(a)(1) in its entirety.  In re Schmid, 54 B.R. 78, 80 (Bankr.D.Or.1985), In re Fossey, 119 B.R. 268, 272 (D.Utah 1990) and In re McCoy, 139 B.R. 430, 432 (Bankr.S.D.Ohio 1991).

Bird v. Hart, 2020 WL 2543172 (D.Utah May 19, 2020), followed this latter line of cases.  It started its analysis by noting that Section 521(a)(1) requires that debtors file an array of documents, including a schedule of assets and liabilities, a schedule of current income and current expenditures, a statement of financial affairs (“SOFA”), and a statement of monthly net income.  Section 554(c) fails to make a specific reference to any of these documents.

Had Congress intended the narrower reading of the statute, it could have drafted Section 554(c) to specify that the scheduling must occur under Section 521(a)(1)(B)(i) in particular. Congress did not, however, limit the applicability of Section 554(c) only to assets scheduled under that subsection. Instead, it identified a broader set of documents, drafting the statute to reference Section 521(a)(1) as a whole. Thus, Section 554(c) on its face allows for the scheduling of assets in any of the filings listed under Section 521(a)(1).

Id. at *2.  The court also noted that the requirements for technical abandonment are intended to ensure that those disclosures allow the trustee to efficiently identify and investigate a potential asset of the estate. Id. at *3.  The court, therefore, had to determine whether the debtors disclosed their assets in a manner “that allowed the Trustee to fulfill his duty to investigate the assets of the estate.” Id. at *4.  However, the language of Section 554(c) does not provide that the debtors may “schedule” an asset in any manner that brings the trustee’s attention to the existence of that asset, such as orally disclosing it at a meeting, but rather, it expressly requires scheduling under Section 521(a)(1).  Therefore, the fact that the debtors may have disclosed the asset orally at their Section 341 meeting of creditors was insufficient.

In Hart, the debtors disclosed their interest in a LLC in multiple documents filed pursuant to Section 521(a)(1).  First, they listed the LLC on their SOFA under Question 18, which requires that the debtor list information about any business entities that they had managed or of which they owned at least five percent within the six years before commencement of the bankruptcy case.  That disclosure noted that the LLC was still in existence at the time of the debtors’ filing for bankruptcy.  Further, the debtors listed their own home address as the address of the LLC.  Thus, the disclosures on their SOFA suggested current ownership of the asset.  In addition, the debtors filed a six-month profit and loss statement for the LLC to fulfill their obligations under Section 521(a)(1)(B)(iv), which requires that the debtors provide evidence of payment received in the sixty days before commencement of the bankruptcy proceedings.  In the aggregate, these disclosures were sufficient. Id. at *4.

 

Matthew T. Gensburg
mgensburg@gcklegal.com