Stevens v. Whitmore, No. 20-60044 (9th Cir. 2021)
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While their state suit against their mortgage service company was pending, the debtors filed for bankruptcy. On a schedule that asked about claims against third parties, they stated they had none. They listed the mortgage servicing company as a non-priority creditor and disclosed the lawsuit in their Statement of Financial Affairs. They discussed the state lawsuit with the bankruptcy trustee. The trustee determined there were no scheduled assets that would benefit the estate. The bankruptcy court discharged the trustee and closed the case. Later, the mortgage servicing company contacted the bankruptcy trustee, offering to settle the lawsuit. The trustee was reappointed, took over the state lawsuit, settled it, and got the settlement approved by both the state court and the bankruptcy court. The settlement proceeds went to the bankruptcy estate, not the debtors.
The Bankruptcy Appellate Panel and Ninth Circuit affirmed. Under 11 U.S.C. 554(c), at the end of bankruptcy proceedings, property that has not been otherwise administered can generally be abandoned to the debtor only if it has been “scheduled.” Section 554(c) requires property to be disclosed on a literal schedule under 11 U.S.C. 521(a). Without trustee or court action, property disclosed only on a statement, such as a Statement of Financial Affairs, cannot be abandoned under section 554(c). The debtors did not meet the requirements of section 544(c), and their interest was not abandoned.
Court Description: Bankruptcy. The panel affirmed the Bankruptcy Appellate Panel’s decision affirming the bankruptcy court’s approval of a settlement of a state court lawsuit filed by debtors against their mortgage servicing company. While the state suit was pending, debtors filed for bankruptcy. On a schedule that asked about claims against third parties, they stated they had none. They listed the mortgage servicing company as a non-priority creditor, and they disclosed the state lawsuit in their Statement of Financial Affairs. They also discussed the state lawsuit with the bankruptcy trustee. The trustee determined there were no scheduled assets that would benefit the estate, and the bankruptcy court discharged the trustee and closed the case. Later, the mortgage servicing company contacted the bankruptcy trustee and offered to settle debtors’ claims in the state lawsuit. The trustee was reappointed by the bankruptcy court, took over the state lawsuit, settled it, and got the settlement approved by both the state court and the IN RE STEVENS 3 bankruptcy court. The settlement proceeds went to the bankruptcy estate, not the debtors. The panel held that, under 11 U.S.C. § 554(c), at the end of bankruptcy proceedings, property that has not been otherwise administered can generally be abandoned to the debtor only if it has been “scheduled.” The panel held that § 554(c) requires property to be disclosed on a literal schedule under 11 U.S.C. § 521(a). Thus, absent trustee or court action, property disclosed only on a statement, such as a Statement of Financial Affairs, cannot be abandoned under § 554(c). Because the debtors listed the state lawsuit only on the Statement of Financial Affairs, and not on a schedule pursuant to § 521(a), they did not meet the requirements of § 544(c), and thus their interest was not abandoned. Accordingly, the bankruptcy court properly reappointed the trustee and approved the settlement.
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