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60 LET'S BREAK IT DOWN: When an individual files Chapter 7 bankruptcy and they own real estate, they either "retain" or "surrender" the property. If the individual elects to "retain," they intend to keep their home and negotiate or eliminate the other debts. However, if they chose to surrender, this is where things go astray. When a debtor surrenders a property, the trustee becomes the legal administrator/seller and has a fiduciary to sell the property or give it back to the secured creditor to settle the debt. In most cases, this does not happen. If the trustee sells the property, then they are fulfilling their duty to both secured and unsecured creditors, and will apply proceeds from the sale to unsecured creditors (medical bills, credit cards, etc.) in the estate. Alternatively, the trustee can choose to abandon the property, which removes it from the bankruptcy estate. ere are several reasons why a trustee might decide to abandon a property from the bankruptcy. Suppose the property sale didn't bring enough meaningful value to the estate, the property had title issues, or they could not generate meaningful compensation for the trustee's time spent working on the case. Often a trustee shies away to avoid scrutiny from governing authorities such as the United States Trustees' office, which regulates the trustees' activities. Also, their local judge in the district may have a different view on selling assets because they may be over-encumbered assets. ese are all valid issues which stem from a broken system. Trustees, creditors, and even creditors' counsel become adversarial rather than working together to align all parties' interests for a positive outcome. Most debtors and their legal counsel believe that once an asset is surrendered, they are off the hook. e onus to resolve the lien falls back on the debtor. e secured creditor has few options when this happens, and if the debtor does not workout financial arrangements with the creditor, they mainly file foreclosure and eventually take possession of the property. is creates emotional turmoil and long- lasting financial hardship on the debtor when their intent was to workout a solution for the surrendered property. To make matters worse, a foreclosure has a much more significant impact on a debtor's credit future. Bankruptcy or a short sale will impact a credit score about 85–160 points (higher scores have the most significant impact), but this is only short-term, providing the debtors the ability to reestablish their credit in 18-24 months and the ability to buy another home. Foreclosure, on the other hand, stays as a negative mark on a credit report for seven years, preventing the debtor from housing credit and much more. Even after that time passes, a new mortgage will still be at a much higher rate. If a trustee abandons the property and the real estate lien is not resolved while in bankruptcy, the debtor loses the benefit of bankruptcy, suffering total financial hardship, and robbing the debtor of the ability to receive that "fresh start" that is the goal of a bankruptcy. For the secured creditor, selling property in bankruptcy versus foreclosing saves an average of $49,000 on a $250,000 home—a preferable outcome for a creditor to save money and complete a nonforeclosure outcome, but when the secured creditor is denied their right to have the home sold in bankruptcy the mortgage creditor suffers that loss. e courts will argue that they have remediation options outside of bankruptcy. However, since selling in bankruptcy is a much better option and elected by the debtor to have the home sold; not allowing this sale to occur creates significant financial hardship for both the debtor and creditor. is is not the intention bankruptcy law was intended to provide. Why does this happen? Well, several issues lead to this result. THE ROLE OF THE TRUSTEE e trustee is commissioned to administer the debtor's estate and receives $60 for this service plus a percentage of funds distributed to other creditors in the estate. Trustees are appointed by and report to "e Office of the United States Trustee" (UST). e UST is an executive branch agency that is part of the Department of Justice. Its responsibilities include monitoring the administration of bankruptcy cases and detecting bankruptcy fraud. Trustees are under constant examination from the UST's office and can be sanctioned for any malfeasance, both real or perceived. e focus is primarily on potential fraud from the trustee receiving fees for the services they Feature By: Brad Geisen Over time, regulation, process, and interpretation have turned the bankruptcy process into a black hole for creditors and the end of the road for debtors, resulting in a lose-lose for all stakeholders.