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When a Bankruptcy Trustee is Appointed by the Court

Creditor attachment of an estate to satisfy outstanding debt may subsequently involve those assets in a bankruptcy. Depending if debts are attached to estate property that is involved in a Chapter 7 (personal) or Chapter 11 (business) related bankruptcy, the court will appoint a trustee to oversee and administer the process.

 

The Bankruptcy Trustee’s role and responsibilities.

Before a bankruptcy petition is submitted to federal court, the bankruptcy trustee is responsible for the documented accuracy of liquidation transactions to meet court requirements for debt dilution (11 U.S. Code § 704 – Duties of trustee). Trustees receive a percentage of assets sold, as well as a fee for service for performing those transactions. Petition for Chapter 7 or Chapter 11 bankruptcy must be accompanied by the estate transaction record. The bankruptcy trustee must review all records involving an estate’s assets, including market value appraisals, and income tax returns. After the record substantiating the bankruptcy petition has been verified by the trustee, court filing may proceed.

 

Avoidance of preferential and improperly executed interests.

Once the petition for Chapter 7 or Chapter 11 is filed, the bankruptcy trustee presides over the mandatory “341 meeting” attended by the executor of the estate or trust. Although creditors do not always attend the meeting, it allows for creditors to participate in the due diligence process before the bankruptcy is finalized.

 

The trustee has the power to “avoid” or deny any preceding improperly executed security interests or preferential transfers made by the decedent owing money, or the estate prior to the bankruptcy case. If certain creditors have been paid in lieu of equitable distribution of those monies to satisfy outstanding debts, the trustee can effectively redistribute those funds. Improperly executed liens made by creditors can also be avoided in favor of the debtor, making the attached asset free and clear of obligation.

 

Court response to a bankruptcy petition as IP dilution strategy.  

In a circumstance when an estate or trust has no existing business operations and no substantial income; is liquidating opposed to reorganizing; or has administrative costs with no funds to satisfy outstanding debts; and has invoked automatic stay to avoid IP litigation, bankruptcy can appear like a viable solution. The issue of intangible intellectual property (“IP”) assets can complicate liquidation, however. An estate or trust pursuant of bankruptcy as a lever for liquidity from auction of IP assets, is seeking a quick path to debt dilution. Appointment of a Chapter 7 or Chapter 11 trustee by the court places the federal government in oversight of an estate or trust. The result is dissolution of the estate. The upside is a possibility of settlement for the benefit of all constituencies.

 

Seek an estate law consultation.   

A bankruptcy trustee discloses financial information about the debts, real and personal property, income, and the current state of the estate’s financial affairs to the court. Protect your beneficiary right to inheritance. Creditor attachment may necessitate the filing of a Chapter 7 or Chapter 11 bankruptcy affecting estate or trust value without the assistance of a licensed attorney experienced in estate law and probation litigation.

 

Ettinger Law Firm is a licensed New York attorney practice specializing in estate planning and probate litigation. Contact Ettinger Law Firm to schedule a consultation about an estate or trust law related matter.     

See Related Blog Posts

Supreme Court Ruling – Inherited IRAs Not Protected in Bankruptcy

Trustee Found Liable for Arbitration Costs

 

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