When a bankruptcy case is filed, the debtor’s assets become property of the bankruptcy estate. There are two ways that assets may cease to be property of the estate. When a case is closed at the end of the bankruptcy process, any assets listed in the bankruptcy schedules but not administered (or used to pay creditors’ claims) by the trustee are deemed abandoned. This type of abandonment is automatic. The other type of abandonment requires either notice by the trustee or a motion by an interested party — for example, the debtor.

If a trustee does not intend to use property of the estate to pay creditors, the trustee can file a notice of intent to abandon during the case. The trustee may do this if the property is “burdensome” to the estate, is of “inconsequential value and benefit” to the estate, or if there is some other good reason why property of the estate should not be used to pay creditors. If within 14 days, no interested party objects to or requests a hearing on the trustee’s intent to abandon, abandonment occurs without a court order.

If a debtor wants to sell or transfer anything or if, for example, a debtor wants to refinance a home while the bankruptcy case is pending, the bankruptcy trustee must agree to abandon the bankruptcy estate’s interest, and a court order authorizing abandonment of the property may be necessary — typically, when a court order is requested by a title company. The trustee and the court will not permit abandonment unless the property is burdensome to the bankruptcy estate or is of inconsequential value and benefit to the estate—that is, the asset is not worth using to pay creditors. Notice of the proposed abandonment and an opportunity for a hearing must be given to creditors and other interested parties. If no one objects and requests a hearing, the court may enter an abandonment order a month or more after the filing of the motion and notice to creditors.

As a practical matter, there is a third way that property could be abandon if any property of the estate is collateral for a creditor's claim. The property may be abandoned if the secured creditor files a motion for relief from stay and the trustee, debtor or another party in interest does not object to the motion for stay relief. Once the bankruptcy court enters an order granting the secured creditor relief from the bankruptcy stay, the creditor is allowed to begin or continue a foreclosure or repossession concerning the collateral.

In a chapter 13 case, the abandonment procedure above is not necessary if a plan has been confirmed by the court and property of the bankruptcy estate has re-vested in the debtor.