Responsibility For Maintenance of Non-Exempt Estate Property During Case Administration

A chapter 7 debtor has substantial non-exempt assets including two commercial rental properties in another state. The debtor and trustee entered into a money settlement under which the trustee would deed back to the debtor, or his designees, the commercial rental properties. Two months after approving the settlement in open court the bankruptcy court has not written and issued an order, so the parties have not implemented the transaction. In the meantime the trustee has collected rents from commercial tenants but the trustee has not paid mortgage payments, real estate taxes, or maintenance. The properties conditions has deteriorated and equity has evaporated. Taxes are past due. The City is citing building code violations. The City is levying fines against the property. The debtor is very concerned that after the order approving settlement is issued and the trustee conveys title back to the debtor he will be stepping into liability for taxes and fines incurred post filing. The debtor asks what he can do to protect himself against incurring personal obligations to the City.

I posed the question to some local attorneys, none of which is sure of the answer. Technically, I think the Debtor can refuse acceptance of the Trustee’s deed and effectively disclaim ownership. One attorney suggested that the City make a claim for administrative expenses incurred, yet that is beyond the debtor’s control. Someone suggested the debtor make an administrative claim on behalf of the City for taxes and repairs; such claims are more often part of Chapter 11 proceedings. The debtor does not want to get into a fight with the trustee given the pending settlement. The trustee may make an emergency motion to prompt the order because the trustee is concerned about its liability during its control of what have become radioactive estate assets.

I don’t know the answer to this interesting situation. I would appreciate thoughts from anyone who faced similar circumstances.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida