Post-Filing Activity In An Illinois Bankruptcy
Nearly five years after the buy-sell-trade company filed bankruptcy, the trustee is still seizing and selling THR’s assets.
After locating a 2001 Chevrolet Suburban that belonged to the bankrupt company, the trustee almost immediately filed a motion to sell it at auction. Various state and federal agencies hold millions of dollars in liens against THR, and persistent allegations of bankruptcy fraud have kept the case open all this time. All told, the trustee has sold assets totalling $1.3 million to satisfy claims that exceed $57 million. Several years ago, the trustee seized a large number of collectibles and sold them at auction, including a New York State Prison electric chair, silver baby rattles, Elvis memorabilia, an armored van, and many other items.
THR acquired these items in its capacity as a reseller, and still had them when it ceased operations.
Seizing and Selling Assets
In corporate bankruptcies, the trustee is usually more aggressive in this area, because the intent of the Bankruptcy Code, which is to give the honest yet unfortunate debtor a fresh start, is not as applicable.
The trustee (individual who oversees a bankruptcy for the bankruptcy judge) has a duty to examine the debtor’s nonexempt assets and determine if selling them would be in the best interest of the creditors; the trustee does not have a duty to take everything possible and liquidate it, even in a Chapter 7.
Motor vehicles are a good example. Individual debtors in Illinois may exempt one vehicle with a value of up to $1,200. Bear in mind that this is the amount of equity in the vehicle, which is usually not the same as its fair market value.
Typically, new vehicles have high values but either little equity or, more likely, negative equity. On the flip side, older vehicles, like a 2001 SUV, usually have no outstanding loans but their fair market value is very low.
Assume the 2001 Suburban has a fair market value of $3,000. At the trustee’s recommendation, the judge could order the debtor to turn over the vehicle to the trustee for sale. After the trustee gave the debtor $1,200, the remaining $1,800 would be distributed among the creditors. However, the trustee must bear all the risk of sale, including towing costs, storage costs, make-ready expenses, any necessary repairs, auction costs, and all other expenses. Furthermore, there is no guarantee that the vehicle would sell for fair market value.
Therefore, when all is said and done, seizing this Suburban may likely result in a debt to the bankruptcy estate instead of a credit, or at best, a few dollars for each creditor, because proceeds must typically be distributed equally. Either result is arguably not in the best interest of the creditors.
Connect With Experienced Attorneys
Even if some of the debtor’s property is not exempt, the trustee will probably not seize it. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.