Bankr. LEXIS 1961
June 16, 2003, Decided
DISPOSITION:  [**1]  Debtors' motion for expedited determination that
chapter 7 trustee has abandoned or can be deemed to have abandoned estate's
interest in debtors' interest in their residence denied without prejudice.
CASE SUMMARY
PROCEDURAL POSTURE: The debtors, a married couple, filed a motion for an
expedited determination that the Chapter 7 bankruptcy trustee had abandoned
or 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 primary
residence was less than the joint household exemption to which they were
entitled. In support of their valuation of the property, the debtors
submitted a market survey prepared by a licensed real estate broker. The
trustee filed a no-asset report. Thereafter, the debtors listed the
residence for sale at a much higher price than the fair market value stated
in their petition. When the trustee learned of the listing agreement and the
asking price, he notified the debtors that the no-asset report was being
withdrawn. The debtors contended that the trustee's filing of the no-asset
report should be deemed to be an abandonment of the estate's interest in the
debtors' interest in the residence and that they were entitled to rely on
it. The court held that the filing of the no-asset report did not constitute
an abandonment under 11 U.S.C.S. § 554(a). The trustee did not take steps to
abandon the property as provided in Fed. R. Bankr. P. 6007(a). Moreover, the
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.
COUNSEL: Kenneth Kirschenbaum, TRUSTEE.
JUDGES: Stan Bernstein, Bankruptcy Judge.
OPINIONBY: Stan Bernstein
OPINION: Issue:   On June 5, 2003, Frederick and Lorrie A. Schoenewerk
(debtors) filed a motion for an expedited determination that Kenneth
Kirschenbaum, Esq., the chapter 7 trustee (trustee), has abandoned or can be
deemed to have abandoned the estate's interest in the debtor's interest in
their residence located at 255 Locust Drive, Rocky Point, NY 11788
(property). In reply, the trustee has objected to the motion; therefore, the
burden of proof shifts back to the moving party. Upon reviewing the
pleadings and the docket of this Court, the Court has decided to deny the
debtors' motion without hearing because it is entirely without merit on its
face.
Discussion:
On March 25, 2002 (Petition Date), the debtors filed a joint petition for
relief under chapter 7 of the Bankruptcy Code. In their schedules of assets
and liabilities, they stated under oath that the fair market value of their
primary 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 corroborated
by a "market survey" prepared by a licensed real estate broker, which is
attached to their motion. The broker placed a value on the property of
between $ 145,000 and $ 155,000. The debtors allege that they mailed the
trustee a copy of the broker's price opinion, including the data on
comparable sales allegedly supporting the opinion. They also point out that
the trustee had a full opportunity to examine the debtors under oath at the
section 341 meeting of creditors, and they fully co-operated in responding
to any of his concerns. The debtors further allege that the trustee was
apparently satisfied that there was no material benefit to be gained by the
trustee's selling their residence through a broker, and that his filing of a
No-Asset Report (NDR) can only be deemed to be an abandonment of the
estate's interest in their interest in the residence. Moreover, the debtors
allege that they had a right to rely upon the trustee's "implied
abandonment" and that their reliance is evidenced by the fact that they have
listed the property for sale with a local real estate broker.
During cross-examination at an evidentiary hearing held on [**3]  the record
on May 30, 2003, Mr. Schoenewerk admitted that he and his wife had listed
their residence for sale through a broker at an asking price of $ 249,900.
n1 Indeed, recovering that equity for himself was the primary strategic goal
of the individual creditor, Horst Klausing, who filed the complaint on June
28, 2002 that led to the trial on May 30, 2003. When the trustee learned of
the listing agreement and the asking price, which had now become a matter of
public record; his counsel sent a formal letter to the debtors'  [*61]
counsel, notifying the debtors that the trustee was withdrawing his no-asset
report, n2 that they were precluded from continuing to list their residence
for sale with an unauthorized broker, and that the debtors' nonexempt
interest in the property remained vested in the trustee by operation of law.
n3
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n1 The asking price was originally $ 265,000.
n2 The Rescission was filed by the trustee on June 5, 2003 and the Trustee's
Notice of Assets and Request for Notice to Creditors was filed the same
date. Proof of claims are now due by September 3, 2003.
n3 Under section 725 of the Bankruptcy Code, the trustee bears the
responsibility of determining if and how to dispose of property of the
estate.
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As his entire legal authority, the debtors' counsel relied wholly on just
one opinion from another bankruptcy judge in this district that by filing a
no-asset report, the trustee can be deemed to have abandoned any interest of
the estate in the debtor's interest in real or personal property. In re
Ozer, 208 B.R. 630 (Bankr. E.D.N.Y. 1997). Any opinion issued by a colleague
of this judge would ordinarily be entitled to very serious consideration out
of respect to one's peers. However, the salient fact is the decision was
reversed 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 his
responsive memorandum, the posture of the Schoenewerk case makes it far
easier to decide the contested matter in favor of the trustee. In the Ozer
case, the Clerk of the Court had already closed the chapter 7 estate, and it
took the trustee a full eighteen months before filing his motion to reopen
the closed case. That motion was denied by the Bankruptcy Court within the
exercise of her discretion, but later reversed as an abuse of discretion.
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n4 This case was cited in In re Sweeney, 275 B.R. 730, 735 (Bankr. W.D. Pa.
2002); See also In re Alcorn, 252 B.R. 174, 178 (Bankr. D. Colo. 2002) ("the
Court would have little hesitation to reopen a case for the administration
of assets or value discovered after it had been hidden, omitted, obfuscated,
or was otherwise the product of fraud, deceit or Debtors' wrongdoing"); In
re Winebrenner, 170 B.R. 878, 882 (Bankr. E.D. Va. 1994) ("Administering
undisclosed assets has been frequently held sufficient cause to reopen a
bankruptcy case.")
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This case, as the trustee points out, has not been closed. The status of the
case remains open, not due to any "mistake or inadvertence" of the Clerk's
office, as alleged by the debtors' counsel; quite to the contrary, the
Clerk's standard protocol is not to close any chapter 7 case until at least
ten days beyond the date until (i) the Bankruptcy Court has determined every
complaint filed under section 727(a) or under section 523(a) and/or (ii)
every appeal to the district court or to the Court of Appeals of any
judgment or order of a bankruptcy judge in this district is finally
concluded. n5
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n5 The debtors' counsel could have ascertained this protocol in a two-minute
phone call to the Clerk's office, but he preferred to speculate about the
reasons for this case's remaining open (at the cost of denigrating the
Clerk's office) rather engaging in the most minimal form of due diligence
required under Fed. R. Bankr. P. 9011 before signing his name to a pleading.
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Section 554(a)  [**6]  expressly authorizes the trustee to file a motion on
notice and hearing to abandon any nonexempt asset that is burdensome or
inconsequential value or benefit to the estate. Here the trustee did not so
move, 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, in
the exercise of its discretion, to order the trustee to abandon any asset
that meets the criteria set forth in subsection 554(b). Even assuming that
the debtors' pending motion should be deemed to fall under section (b),
although it is not pled in those terms, section (b) would not be applicable
because the debtors claim that there is substantial value in the nonexempt
equity in their residence. Subsection (c) provides that unless the court
orders otherwise, any property that is scheduled by the debtors "not
otherwise administered at the time of the closing of a case is abandoned to
the debtor . . ." This subsection also does not apply because the case has
not been closed.
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n6 And even an asset, formally abandoned, may be reclaimed by the chapter 7
trustee for the benefit of creditors. "Abandonment may be revoked, however,
if the debtor concealed information from the trustee, or if the trustee did
not possess sufficient information about the claim." In re Lintz W. Side
Lumber, Inc., 655 F.2d 786, 791-792 (7th Cir. 1981).
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If Congress intended to treat the filing of a no-asset report as a
dispositive legal event with respect to any abandonment issue, it could have
so provided, but it did not, and no negative inference may be drawn from the
structure of this subsection to support the debtors' position. n7 Indeed,
subsection (d) makes the redundant point, to avoid any misunderstanding on
anybody's part, that "Unless the court orders otherwise, property of the
estate that is not abandoned under this section and that is not administered
in this case remains property of the estate." Thus, on this narrow legal
issue, the debtors have completely ignored the plain language of the Code
that requires either an affirmative act of the trustee to abandon an asset
of the estate under subsection (a) or an implied act of the trustee to
abandon an asset that is not administered, which becomes effective only upon
the closing of the case.
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n7 "A failure to pursue a particular claim by a trustee . . . does not
amount 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."
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In further support of their argument, the debtors refer to Fed. R. Bankr. P.
5009, which provides, in relevant part:
If in a chapter 7 . . . case the trustee has filed a final report and a
final account and has certified that the estate has been fully administered,
and if within 30 days no objection has been filed by the United States
trustee or a party in interest, there shall be a presumption that the estate
has been fully administered. (Emphasis added)
The debtors cited no case construing this Rule and have failed completely to
understand the purport of this Rule. First of all, Rule 5009 does nothing
other than to restate section 350(a), to add a minor modification to specify
a thirty-day period during which the United States trustee or any party in
interest may file an objection to close a case, and to add a presumption
that the estate has been fully administered if no timely objection is filed.
To see this Rule in context, one has to step back and understand that one of
the reforms under the Bankruptcy Code, as enacted in 1978, was intended to
relieve bankruptcy judges of the heavy burden of case administration in its
[**9]  most routine and tedious bureaucratic aspects, including the actual
issuance of orders closing chapter 7 no-asset cases that comprise over 90%
of the chapter 7 cases filed by natural persons. Most case administrative
functions were ultimately reallocated to an administrative agency in the
executive branch of  [*63]  the federal government, to wit, the Executive
Office of the United States Trustees lodged in the U.S. Department of
Justice and reporting ultimately to the U.S. Attorney General. One of the
central functions of the Executive Office of the United States Trustee is to
appoint and supervise the private panel of chapter 7 trustees. As part of
the process of supervising chapter 7 cases, it became the primary
administrative responsibility of the United States trustee to make certain
that the panel trustees moved their assigned cases to an expedited closing.
The function, however, of actual closing a case remained vested with the
Clerk of the Court. Since the filing of a final report in a no-asset case
still requires some sort of administrative review by the United States
trustee this worked to ensure that trustees timely co-operated in the
closing of no-asset cases. n8
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n8 11 U.S.C. § 704(9).
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With this as the institutional background, it becomes understandable that
this Rule is intended to address two governmental entities and not parties
in interest, namely, the Clerk of the Bankruptcy Court and the United States
trustee. This Rule sets up a "default rule" that authorizes the Clerk to
close a case, absent other unexpressed conditions, when a thirty-day period
has run after the trustee files a no-asset report with the Clerk and the
United States trustee and the United States has not filed an objection that
would bring the case back to the attention of the judge assigned to the
case. If there were no such default rule, the only way the Clerk's office
could ascertain whether the United States trustee was fully satisfied with
the chapter 7 trustee's administration of the case would be to insist that
the United States trustee take the additional affirmative act of sending in
periodic reports advising the Clerk to close a scheduled list of numbered
chapter 7 cases. That practice would impose an intolerable burden on the
United State trustee's severely limited support staff. n9 The default rule
eliminates one round of paper.
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n9 The 1991 Advisory Committee Note to Rule 5009 states, "This amendment
facilitates the United States trustee's performance of statutory duties to
supervise trustees and administer cases under chapters 7, 12, and 13
pursuant to 28 U.S.C. § 586."
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Why should the Clerk care whether a case is closed or not? The explanation
may not be readily apparent to anybody on the outside of the bankruptcy
administrative system looking in. Of course, as with any government agency,
statistics are maintained by the Administrative Office of the United States
Courts on the rate at which each Clerk's office closes cases. These
statistics are reported to the Congress as an essential part of the annual
budgeting process for the operation of the courts, and for the
district-by-district allocation of that appropriation by the Administrative
Office. Apart from statistics and budgeting, one of the most important
administrative functions of the Clerk is to collect filing fees in each
bankruptcy case. It is only the Clerk, and not the United States trustee,
who has the institutional duty of disbursing a standard fee to the panel
trustee for "administering" a no-asset chapter 7 case. n10 The Clerk cannot,
however, disburse that standard fee until the case is actually closed as
evidenced by an entry by the Clerk in the docket of that case. Then the
balance of the filing fee has to be periodically remitted to the United
States Treasury as a revenue measure.  [**12]   [*64]  Thus, the
bureaucratic function of Rule 5009 has really has nothing to do with the
debtor. n11 For this reason, Rule 5009 cannot be construed as granting any
substantive right or interest to the debtor in any property that came into
the estate upon the filing of the chapter 7 petition by operation of law.
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n10 11 U.S.C. § 330(b)(1). "Chapter 7 trustees have an incentive to
administer no asset cases promptly: they are not paid until after their
services are rendered, . . . and the case is ready to be closed." In re
Hart, 76 B.R. 774, 776 (Bankr. C.D. Cal. 1987).
n11 "Moreover, under Section 350 and Rule 5009, the final act of
administration could very well be a purely ministerial act of which the
debtor and other parties would receive no notice." Korvettes v. Sanyo
Electric (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).
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Rule 5009 has to be read as creating [**13]  a rebuttable presumption. The
trustee has rebutted the presumption by averring that he was either
intentionally misled by the debtors or their agent, the prospective broker,
or that if he made an earlier misjudgment, then he is obligated to withdraw
his no-asset report and to administer the asset in question as soon as he
has learned of his earlier misjudgment. n12 The Rule impliedly leaves it to
the discretion of the Court to determine what kind of showing a trustee has
to make before he can burst the bubble of presumption. The Court is now
satisfied that the trustee has burst that bubble. As a final consideration
on this point, to the extent that the construction that the debtors' counsel
offers for Rule 5009 is inconsistent with the express substantive provisions
of section 554, it has long been a fundamental postulate in bankruptcy law
that a Federal Rule of Bankruptcy Procedure cannot be construed to trump a
substantive provision of the Code, and so counsel's argument fails on this
point as well.
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n12 The Court in Vonderahe v Polaniecki, 276 B.R. 856, 859-860 (S.D. Ohio
2001) stated that the "trustee's prior Interim Report listings of certain
assets as having zero value did not constitute abandonment of assets in
absence of an abandonment hearing and formal order of the bankruptcy court."
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Instead, Rule 6007 sets forth the procedures the trustee or debtor in
possession must take in order to effectuate abandonment of property of the
estate. Fed. R. Bankr. P. 6007, provides in pertinent part:
(a) Notice of proposed abandonment or disposition; objections; hearing.
Unless otherwise directed by the court, the trustee . . . shall give notice
of a proposed abandonment or disposition of property to the United States
trustee, all creditors, . . . . party in interest may file and serve an
objection within 15 days of the mailing of the notice, or within the time
fixed by the court. If a timely objection is made, the court shall set a
hearing on notice to the United States trustee and to other entitles as the
court may direct. (Emphasis added)
Clearly in this instance the trustee did not take the needed steps to
abandon the debtor's property. n13
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n13 And in a case decided under the former Bankruptcy Rules, the court in In
re 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 . . . They
continued to be the property of the estate until the Court authorized their
abandonment or the bankruptcy proceeding was closed."
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It is not necessary to address the debtors' reliance argument other than to
say that merely listing a residence for sale does not constitute "reliance."
Title to the property has not changed, and there are no other facts
suggested by the debtors that begin to approach "reliance." Even stretching
their argument to the fullest, the Court does not perceive that their
"reliance" was reasonable when looking at this case as a whole. n14 The
debtors never  [*65]  had the authority to list their residence for sale
without notifying the trustee in the first place.
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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's
motion to compel the trustee to abandon property because it found that
"there is substantial equity in the Property, which, when sold, will permit
a substantial dividend to creditors. The Property is therefore not
burdensome to the estate, but is of significant value and benefit to the
estate."
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These debtors have scheduled very substantial unsecured claims that have
been liquidated and are not subject to any bona fide dispute. It is a fair
presumption that several creditors with allowable claims will file their
proofs of claim upon receipt of a new notice of discovery of assets, and
those with claims described as disputed or contingent by the debtor will
also file their proofs of claim against the debtors, to which the trustee or
the debtors may file objections.
In this case, the adversary proceeding filed by Mr. Klausing took until May
30, 2003 to be tried, and the plaintiff has been directed to file proposed
findings of fact and conclusions of law by June 13, 2003, with the debtors
given an opportunity to file their proposed counter findings of fact,
conclusions of law, and supporting memorandum of law by June 27, 2003. Under
these circumstances, this case may remain open for the next few years if
either party to the adversary files a notice of appeal of any judgment or
order of this Court.
Independent of the trustee's opposition to the debtors' motion, this Court
has carefully reviewed the "market survey" that purportedly the trustee
relied upon to the prejudice of [**17]  the creditors of this estate. (The
Court will not demean the debtors by suggesting that it appears that they
instructed the broker concerning the range of value that would be useful for
their purposes.) Nevertheless, a mere perusal of the "market survey" shows
on its face that it was not prepared by an independent fee appraiser with no
economic interest in the sale of the property or any prospective business
relationship with the debtors. The enclosure letter explicitly states that
the "surveyor" was hoping for the debtors to list their residence with them
for resale. And even this Court's preliminary review of each of the
"comparables" shows them to be materially misleading, based upon the dates
of sale and the attributes of each of the three comparable properties. The
"subject property" has three bedrooms and two baths, an eat-in kitchen, a
fully finished basement, seven rooms, and a garage. Every other "higher
priced" property has no more than six rooms and one of the "comparables"
only has one bathroom. In addition, three of the four "comparables" show
sales dates of not less than ninth months before the date of the "market
survey." Assuming that all comparables continued to appreciate [**18]  from
their respective dates of closing to the date of this market survey, then
those comparables would materially understate their value. It would be
pointless to waste the time of this Court to conduct an evidentiary hearing
with respect to the "market survey." On its face, this "market survey" bears
very little probative value, and is likely to be inadmissible because it was
not prepared by a licensed and disinterested appraiser to begin with.
In addition, this Court has to rely upon the combined legal and business
expertise of the panel trustee and the proper exercise of his fiduciary duty
on behalf of the creditors of the estate. If for any reason, the trustee has
now determined that he may have been misled by the debtors or their agent in
inducing him to file a no-asset report, this case remains open and he has
the right or duty to correct any temporary misjudgment of realizable value.
[*66]  There are very substantial unsecured liabilities in this case, and
the only apparent asset of any nonexempt value is the debtors' residence.
The debtor has presented absolutely no proposed purchase and sale agreement
for the property with an unrelated third party, and as Mr. Schoenewerk
himself [**19]  testified within the past two weeks, this is the most active
season in this market. The debtors can prove no material reliance upon the
trustee's initial no asset report. And if the trustee determines that the
most expeditious practice is to list this property with an experienced real
estate auctioneer, as many other trustees do under just these circumstances,
then this is likely to lead to the highest price to be paid for the
property. But if he wants to list it with a licensed broker in whom he has
confidence, then that is again up to him, and either application will be
noticed to the debtor and the debtors' counsel.
The Court does not find it necessary under the totality of the facts and
circumstances to conduct an evidentiary hearing to determine whether the
debtors or their prospective real estate agent did or did not deliberately
mislead the chapter 7 trustee as to the then "present fair market value" of
their 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 from
work at this new job in Virginia, nor can he bear the travel costs, let
alone pay for the litigation defense costs. As the defendants'  [**20]
counsel represented within the past two weeks, Mrs. Schoenewerk's present
health and emotional condition will be jeopardized if she has to participate
actively in preparing for and testifying in any contested hearing or
proceeding.
Instead the Court is prepared to rely upon its own situation sense to
conclude that it simply defies credulity to argue that this property was
properly valued in the schedules, and that within one year, the property has
benefitted by market appreciation at least $ 85,000 to $ 95,000 in a
lower-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 in
one year of approximately 60%. Even if the property were to sell for $
205,000, and the debtors were permitted their $ 20,000 joint homestead
exemption, there would still be an additional $ 45,000 in gross proceeds,
before deducting closing costs to distribute to unsecured creditors. It
would be a breach of the trustee's overriding fiduciary duty to maximize the
distribution 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 or
judgment of the Court based upon a mistake or in order to avoid a palpable
injustice under Fed. Bankr. R. Pro. 9024. n15 At this point in this chapter
7 case, it is obvious that the debtors want to relocate from this
jurisdiction to Virginia without incurring further litigation costs or any f
urther disruption to their family life, and that no legitimate equitable
purpose 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 of
this estate. The only interest they have in the property under New York
State exemption law is the $ 20,000; bankruptcy law is not intended to
subsidize the purchase of replacement homes of chapter 7 debtors.
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n15 If the trustee's performance was lacking in sufficient diligence, then
the remedy for that negligence, if any, is surely not to punish the
unsecured creditors of this estate, but to make a downward modification in
the trustee's commission or his counsel's final fees.
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 [*67]  Conclusion
So now that the Court has established the uncontroverted fact that this case
remains open and the reasons for this status, there is no legal or equitable
basis 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 these
indisputable facts alone, including those in the record of this case for
which this Court can take judicial notice, the debtors' motion is denied
without prejudice.
The Court strongly urges the trustee and the debtors to save the estate and
themselves the costs of protracted litigation by exploring a consensual
resolution of this matter, and the Court is willing to lend its good offices
to assist the parties in exploring the range of alternatives. In every
dispute over dollars, well-advised parties should be able to reach a
satisfactory resolution over the allocation of dollars. Since the debtors
have already decided to sell the property and move out of the state before
the beginning of the next school year, there should be no emotional issues
of attachment to this property that should cloud the proper exercise of
reason. Of course, the parties can only negotiate [**23]  in a constructive
manner when a firm selling price has been established and the sale has been
approved by the Court after notice and hearing. It goes without saying that
it is the duty of the debtors to assist the trustee n16 and his agents in
making this property available for inspection by prospective purchasers and
ensuring that upon receiving a call from the trustee or his agent in not
less than twenty-four hours before any showing that the property will be
made presentable to prospective purchasers. It will be in everybody's
interest to co-operate to the fullest in order to make this sale as least
disruptive as possible, and the season is already well underway.
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n16 11 U.S.C. § 521(3) states that the debtor shall "cooperate with the
trustee as necessary to enable the trustee to perform the trustee's duties
under this title . . ."
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So ordered.
June 16, 2003
Central Islip, NY 11722
Stan Bernstein
Bankruptcy Judge

Bankr. LEXIS 1961

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.
OUTCOME: The court denied the debtors' motion.
COUNSEL: Kenneth Kirschenbaum, TRUSTEE.
JUDGES: Stan Bernstein, Bankruptcy Judge.OPINIONBY: Stan Bernstein
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.
Discussion:
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.
During cross-examination at an evidentiary hearing held on [**3]  the recordon May 30, 2003, Mr. Schoenewerk admitted that he and his wife had listedtheir residence for sale through a broker at an asking price of $ 249,900.n1 Indeed, recovering that equity for himself was the primary strategic goalof the individual creditor, Horst Klausing, who filed the complaint on June28, 2002 that led to the trial on May 30, 2003. When the trustee learned ofthe listing agreement and the asking price, which had now become a matter ofpublic record; his counsel sent a formal letter to the debtors'  [*61]counsel, notifying the debtors that the trustee was withdrawing his no-assetreport, n2 that they were precluded from continuing to list their residencefor sale with an unauthorized broker, and that the debtors' nonexemptinterest in the property remained vested in the trustee by operation of law.n3
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n1 The asking price was originally $ 265,000.

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.

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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.
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n4 This case was cited in In re Sweeney, 275 B.R. 730, 735 (Bankr. W.D. Pa.2002); See also In re Alcorn, 252 B.R. 174, 178 (Bankr. D. Colo. 2002) ("theCourt would have little hesitation to reopen a case for the administrationof assets or value discovered after it had been hidden, omitted, obfuscated,or was otherwise the product of fraud, deceit or Debtors' wrongdoing"); Inre Winebrenner, 170 B.R. 878, 882 (Bankr. E.D. Va. 1994) ("Administeringundisclosed assets has been frequently held sufficient cause to reopen abankruptcy case.")

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This case, as the trustee points out, has not been closed. The status of thecase remains open, not due to any "mistake or inadvertence" of the Clerk'soffice, as alleged by the debtors' counsel; quite to the contrary, theClerk's standard protocol is not to close any chapter 7 case until at leastten days beyond the date until (i) the Bankruptcy Court has determined everycomplaint filed under section 727(a) or under section 523(a) and/or (ii)every appeal to the district court or to the Court of Appeals of anyjudgment or order of a bankruptcy judge in this district is finallyconcluded. n5
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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.

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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.
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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).

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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.
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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."

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In further support of their argument, the debtors refer to Fed. R. Bankr. P.5009, which provides, in relevant part:If in a chapter 7 . . . case the trustee has filed a final report and afinal account and has certified that the estate has been fully administered,and if within 30 days no objection has been filed by the United Statestrustee or a party in interest, there shall be a presumption that the estatehas been fully administered. (Emphasis added)

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.
To see this Rule in context, one has to step back and understand that one ofthe reforms under the Bankruptcy Code, as enacted in 1978, was intended torelieve bankruptcy judges of the heavy burden of case administration in its[**9]  most routine and tedious bureaucratic aspects, including the actualissuance of orders closing chapter 7 no-asset cases that comprise over 90%of the chapter 7 cases filed by natural persons. Most case administrativefunctions were ultimately reallocated to an administrative agency in theexecutive branch of  [*63]  the federal government, to wit, the ExecutiveOffice of the United States Trustees lodged in the U.S. Department ofJustice and reporting ultimately to the U.S. Attorney General. One of thecentral functions of the Executive Office of the United States Trustee is toappoint and supervise the private panel of chapter 7 trustees. As part ofthe process of supervising chapter 7 cases, it became the primaryadministrative responsibility of the United States trustee to make certainthat the panel trustees moved their assigned cases to an expedited closing.The function, however, of actual closing a case remained vested with theClerk of the Court. Since the filing of a final report in a no-asset casestill requires some sort of administrative review by the United Statestrustee this worked to ensure that trustees timely co-operated in theclosing of no-asset cases. n8
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n8 11 U.S.C. § 704(9).

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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.
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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."

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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.
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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).

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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.
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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."

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Instead, Rule 6007 sets forth the procedures the trustee or debtor inpossession must take in order to effectuate abandonment of property of theestate. Fed. R. Bankr. P. 6007, provides in pertinent part:(a) Notice of proposed abandonment or disposition; objections; hearing.Unless otherwise directed by the court, the trustee . . . shall give noticeof a proposed abandonment or disposition of property to the United Statestrustee, all creditors, . . . . party in interest may file and serve anobjection within 15 days of the mailing of the notice, or within the timefixed by the court. If a timely objection is made, the court shall set ahearing on notice to the United States trustee and to other entitles as thecourt may direct. (Emphasis added)

Clearly in this instance the trustee did not take the needed steps toabandon the debtor's property. n13
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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."

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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.
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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."

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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.
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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.

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 [*67]  Conclusion
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.
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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 . . ."

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So ordered.
June 16, 2003Central Islip, NY 11722
Stan Bernstein
Bankruptcy Judge