Let’s Make a Deal: Negotiating with Your Chapter 7 Trustee

In a prior post I discussed what is called “nonexempt” property and used the colorful phrase from a bankruptcy case that discusses whether property can be transferred from the “nonexempt” category to the “exempt” category shortly before the bankruptcy is filed.

In a prior post I discussed what is called “nonexempt” property and used the colorful phrase from a bankruptcy case that discusses whether property can be transferred from the “nonexempt” category to the “exempt” category shortly before the bankruptcy is filed.

See Nonexempt Property in Bankruptcy, It’s All About Pigs and Hogs.

Just because a trustee is planning to sell your property doesn’t mean you can’t keep it anyway.

Let’s assume that there is some property that I, as your bankruptcy attorney, cannot protect. Certain things just have to be “left on the table” for the Trustee to sell, if in the Trustee’s discretion, it would benefit the estate and provide funds to distribute to creditors. Some examples of non-exempt property my clients have had to leave on the table have included: a paid off Harley in the garage (assuming the client had other vehicles he needed to keep more), that paid off vacant lot in the mountains the couple hoped to build a vacation cabin on someday, a rare gun collection, or those nice boats or recreational vehicles my clients were able to pay off.

What I have found that in many of these situations my clients were able to keep the property, even though it was nonexempt and subject to a Trustee sale. How could that be? It’s called “let’s make a deal” with the Chapter 7 Trustee.

Let’s take the example of the paid off Harley in the garage. I am embellishing the events to make my point, and to avoid disclosing any attorney client privileges of my actual clients.

First my Client asked me if it had to be put the Harley on his bankruptcy schedules, because it was not registered. I responded that a Harley is not worth going to federal prison for, so yes. That is a topic for another blog. After my Client realized that he had to file bankruptcy and he had to leave the Harley on the table, we discussed the “let’s make a deal” alternative, and it worked.

The Bankruptcy Code Allows the Trustee to Sell Property

but it does not require a public auction, although that is often preferable to get the best deal for all of the creditors. However, the Trustee can sell property through a private sale, at a fixed price, so long as the sale is disclosed to the creditors in the bankruptcy case, and no other creditor objects, which is unlikely. The transaction has to make sense for the Trustee, who is working to maximize the “pot” of assets to distribute to creditors.

How we did that is we took an appraisal and some offers from some dealerships in the area. We pointed out to the Trustee that if she sold the motorcycle at an auction, she would have to pay an auctioneer, advertising expenses and maybe even additional legal fees. If the Trustee were to just sell it to a dealer, she might not get the best deal. So we went to the Trustee, and we agreed to take some money out of my Client’s 401(k), that was exempt, and we gave the Trustee what we estimated was at least as much as the Trustee would have gotten through any other sale, net of disposition costs.

This Resulted in a Quick Check for the Trustee to Enable Her to Distribute Funds to Creditors.

The Trustee has a duty to close estates “as expeditiously as possible.” The Trustee also knows that the Harley, for example, is probably worth the most to the guy who has been working on it and riding it for years. In short, it actually makes good business sense to sell the nonexempt assets to the person who just filed bankruptcy if possible.

So if there are nonexempt assets, it does not necessarily mean you will lose them. You may have to play “let’s make a deal” and buy them at a fair price from the Trustee, with money obtained from exempt property or from relatives.

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