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The Back-Door Politics Behind Trustees Pursuing Non-Exempt Assets

The Back-Door Politics Behind Trustees Pursuing Non-Exempt AssetsWritten by Craig D. Robins, Esq.
 
I recently attended a dinner for an attorneys organization that I am a member of and sat with a bankruptcy judge and two Chapter 7 trustees.  During the dinner, we had an interesting discussion over whether trustees should liquidate vehicles that had some, but not too much, non-exempt equity.
 
This conversation began when the judge asked the trustees why they weren’t going after more cars that appeared to clearly have value over the exemption amount.  The trustees explained that from time to time the Office of the U.S. Trustee puts pressure on the trustees to either go after, or not go after, certain non-exempt assets.
 
Apparently, for a period of time, some trustees were seeking to liquidate vehicles with very little non-exempt value, thereby resulting in a very small distribution for creditors in the bankruptcy estate.  The primary beneficiaries of such sales were the trustees, who received commissions and legal fees, rather than the unsecured creditors, who barely received pennies on the dollar.  Apparently, this was giving trustees a bad name.  One of the trustees said that trustees were being called “money grubbing trustees” and other not-so-nice names for doing so.
 
This trustee explained that at other times, the U.S. Trustee’s Office actually issued totally opposite directives, calling on trustees to be more vigilant and aggressive.
 
In the meantime, the judge questioned the fairness to creditors if trustees let such assets go.  My trustee colleagues countered with these comments:  it is simply not administratively convenient to go after an asset that produces such a small recovery for the estate.  Also, some debtors do not have the financial ability to offer any settlement to the trustee.  The trustee commented that he never saw so many debtors in a destitute situation.
 
I pointed out the inequity of the New York State exemption statute for vehicles, which, not having been changed in over 25 years, hardly gives consumers any protection at all.
 
So when a trustee is considering going after a non-exempt asset, the trustee will be guided by comments and directives from the U.S. Trustee that are not made public, comments they receive from the bankruptcy judges, and their own assessment and determination as to whether doing so is feasible and economically worthwhile for the bankruptcy estate.
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