Is My Chapter 7 Bankruptcy Case Really Over (Part II)?

Generally, when a Chapter 7 bankruptcy has been closed by the Bankruptcy Court, it is because the Chapter 7 Trustee has either expressly issued an “Order of Abandonment” abandoning all interest in the debtor’s personal property and real estate or has constructively done so via the entry of a “Report of No Distribution” stating that there are no assets in the estate to distribute, allowing the court clerk  to close the case. Once this has occurred, typically, the bankrutpcy is finally over and, if the homeowner wishes to short sell or otherwise dispose of his or her home, he or she is free to do so.

Recently, however, some Chapter 7 bankruptcy Trustees in Michigan have been attempting to get bankruptcy cases re-opened and Orders of Abandonment revoked so that they may carve out a bit of an equity pay-out for the bankruptcy estate by essentially commandeering sales of debtors’ homes after the closing of the debtors’ bankruptcy cases. At this point, all of the judges in the Eastern District of Michigan have ruled on this process, and several of them are allowing this to occur when certain criteria are met. The most noteworthy of these criteria is when the bank underbids the fair market value of the home at sheriff’s sale.

Underbidding of this sort has been found by the Court to a constitute “a significant change in circumstances” justifying a re-opening of the case on a number of occasions and by a few judges in particular. Trustees are also leaving bankruptcy cases open for longer periods of time where property is being surrendered on the paper of the bankruptcy petition in order to wait & see if the house is sold sheriff’s sale for a low price.

Long story short, post-bankruptcy home-sales cannot be said to be done, “no problem.” Like everything else where a bankruptcy trustee is involved, it depends.

If you are a Michigan resident and are considering filing for bankruptcy, please feel free to contact me at (248) 977-4182 or jhilla@aronofflinnell.com to schedule a free, initial consultation.