United States Bankruptcy Court, E.D. New York. In re Frederick SCHOENEWERK and Lorrie A. Schoenewerk d/b/a Collision Concepts Corp. d/b/a Olympic Collision Corp., Debtors. No. 802-82063-288. June 16, 2003.

Background: Chapter 7 debtors moved for expedited determination that
trustee had abandoned, or could be deemed to have abandoned, estate's
interest in debtors' interest in their residence.


Holding: The Bankruptcy Court, Stan Bernstein, J., held that trustee,
by filing no-asset report in reliance upon debtors' valuation of
residence at amount only a few thousand dollars in excess of mortgage
indebtedness, did not thereby abandon residence as asset of estate.


So ordered.


                               West Headnotes


[1] KeyCite Notes Link to KeyCite Notes


Key Number graphic 51 Bankruptcy
  Key Number graphic 51IX Administration
    Key Number graphic 51IX(D) Abandonment
      Key Number graphic 51k3131 k. In General. Most Cited Cases


Chapter 7 trustee, by filing no-asset report in reliance upon
debtors' valuation of residence at amount only a few thousand dollars
in excess of mortgage indebtedness, did not thereby abandon residence
as asset of estate, where trustee never filed motion to abandon, and
case had not been closed. Bankr.Code, 11 U.S.C.A. § 554.


[2] KeyCite Notes Link to KeyCite Notes


Key Number graphic 51 Bankruptcy
  Key Number graphic 51VIII Trustees
    Key Number graphic 51k3008 Powers, Duties and Fiduciary Capacity
      Key Number graphic 51k3009 k. Representation of Debtor, Estate,
or Creditors. Most Cited Cases


Chapter 7 trustee bears responsibility of determining if and how to
dispose of property of the estate. Bankr.Code, 11 U.S.C.A. § 725.


[3] KeyCite Notes Link to KeyCite Notes


Key Number graphic 51 Bankruptcy
  Key Number graphic 51IX Administration
    Key Number graphic 51IX(D) Abandonment
      Key Number graphic 51k3136 k. Revocation. Most Cited Cases


Even an asset, formally abandoned, may be reclaimed by Chapter 7
trustee for benefit of creditors; abandonment may be revoked, if
debtor concealed information from trustee, or if trustee did not
possess sufficient information. Bankr.Code, 11 U.S.C.A. § 554.


[4] KeyCite Notes Link to KeyCite Notes


Key Number graphic 51 Bankruptcy
  Key Number graphic 51IX Administration
    Key Number graphic 51IX(D) Abandonment
      Key Number graphic 51k3131 k. In General. Most Cited Cases


Failure to pursue particular claim by trustee does not amount to
abandonment of that claim. Bankr.Code, 11 U.S.C.A. § 554.


[5] KeyCite Notes Link to KeyCite Notes


Key Number graphic 51 Bankruptcy
  Key Number graphic 51VIII Trustees
    Key Number graphic 51k3011 k. Liabilities in General; Accounting.
Most Cited Cases


Key Number graphic 51 Bankruptcy KeyCite Notes Link to KeyCite Notes
  Key Number graphic 51XI Liquidation, Distribution, and Closing
    Key Number graphic 51k3441 k. In General. Most Cited Cases


Bankruptcy Rule providing that if Chapter 7 trustee files final
report and account and certifies to court that estate is fully
administered, and if no party objects within 30 days, then there
shall be presumption that estate is fully administered serves
bureaucratic function of eliminating need for preparation of report
by United States Trustee advising bankruptcy clerk of need to close
cases, and should not be construed as granting any substantive right
or interest to debtor in any property that comes into estate upon
filing of petition by operation of law. Fed.Rules Bankr.Proc.Rule
5009, 11 U.S.C.A.


[6] KeyCite Notes Link to KeyCite Notes


Key Number graphic 51 Bankruptcy
  Key Number graphic 51VIII Trustees
    Key Number graphic 51k3011 k. Liabilities in General; Accounting.
Most Cited Cases


Bankruptcy Rule providing that if Chapter 7 trustee files final
report and account and certifies to court that estate is fully
administered, and if no party objects within 30 days, then there
shall be presumption that estate is fully administered created only a
rebuttable presumption, which trustee rebutted by averring that, in
filing no-asset report, he relied on debtors' valuation of their
residence at amount only a few thousand dollars in excess of mortgage
indebtedness, and that, in light of debtors' listing of property for
sale at amount substantially in excess of value specified on
schedules, he was obliged to withdraw his no-asset report and to
administer asset in question. Fed.Rules Bankr.Proc.Rule 5009, 11
U.S.C.A.


 [7] KeyCite Notes Link to KeyCite Notes


Key Number graphic 51 Bankruptcy
  Key Number graphic 51II Courts; Proceedings in General
    Key Number graphic 51II(A) In General
      Key Number graphic 51k2127 Procedure
        Key Number graphic 51k2129 k. Rules. Most Cited Cases


Federal Rules of Bankruptcy Procedure cannot be construed to trump
substantive provision of the Bankruptcy Code. Bankr.Code, 11 U.S.C.A.
§ 101 et seq.; Fed.Rules Bankr.Proc.Rule 1001 et seq., 11 U.S.C.A.
*60 Jerome Lee Davidow, New York City, for Debtors.
Kirschenbaum & Kirschenbaum, Garden City, NY, for Trustee.


                                   Issue:


STAN BERNSTEIN, Bankruptcy Judge.
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, N.Y. 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:
[1] Link to KeyCite Notes 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' 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.
[2] Link to KeyCite Notes During cross-examination at an evidentiary
hearing held on 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. [FN1] 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, [FN2] 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. [FN3]


      FN1. The asking price was originally $265,000.






      FN2. 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.






      FN3. Under section 725 of the Bankruptcy Code, the
      trustee bears the responsibility of determining if and
      how to dispose of property of the estate.






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). [FN4] 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.


      FN4. 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.2000) ("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.")






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. [FN5]


      FN5. 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.






[3] Link to KeyCite Notes Section 554(a) 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. [FN6] 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.


      FN6. 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).






[4] Link to KeyCite Notes 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. [FN7] 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.


      FN7. "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 WL
      188127, *3, 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."






[5] Link to KeyCite Notes 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 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. [FN8]


      FN8. 11 U.S.C. § 704(9).






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. [FN9] The default rule eliminates one round of
paper.


      FN9. 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."






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.
[FN10] 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. *64 Thus, the bureaucratic function of Rule 5009 has really
has nothing to do with the debtor. [FN11] 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.


      FN10. 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).






      FN11. "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).






[6] Link to KeyCite Notes [7] Link to KeyCite Notes Rule 5009 has to
be read as creating 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. [FN12] 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.


      FN12. 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."






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. [FN13]


      FN13. 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."






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. [FN14] The debtors never *65 had the
authority to list their residence for sale without notifying the
trustee in the first place.


      FN14. 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."






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 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 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 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' 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 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. [FN15] 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 further 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.


      FN15. 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.






                               *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 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
[FN16] 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.


      FN16. 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 ..."






So ordered.
Bkrtcy.E.D.N.Y.,2003.
In re Schoenewerk
304 B.R. 59, 50 Collier Bankr.Cas.2d 274
END OF DOCUMENT