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Chapter 7 Bankruptcy Trustee Kenneth Kirschenbaum and Nassau County District Attorney Fight Over Assets After Debtor Commits Suicide

Chapter 7 Bankruptcy Trustee Kenneth Kirschenbaum and Nassau County District Attorney Fight Over Assets After Debtor Commits SuicideWritten by Craig D. Robins, Esq.
 
Recent Decision by Judge Grossman settles matter for the time being
 

In July 2008, my friend and colleague, Long Island bankruptcy Attorney Scott R. Schneider, filed a typical Chapter 7 bankruptcy petition for a consumer debtor, Anthony J. Vitta, in the Central Islip Bankruptcy Court.

Nine months before, the debtor had been arrested by the Nassau County Police Department and charged with selling drugs.  As part of that proceeding, Nassau County seized various assets that the debtor owned pursuant to the New York Civil Forfeiture law. 
 
In the month prior to filing the bankruptcy petition, the debtor pled guilty to felony charges and agreed to execute a stipulation of settlement which would permit Nassau County to keep the seized property.
 
The trustee, Kenneth Kirschenbaum, who then learned about this, immediately brought an adversary proceeding against Nassau County, seeking a turnover of the seized property, alleging that it was property of the debtor’s bankruptcy estate.
 
In October 2008, before the debtor could be sentenced, he committed suicide.  What followed was a battle between trustee Kenneth Kirschenbaum and the County of Nassau.
 
Nassau County argued that the debtor’s interest in the seized property was terminated when the debtor pled guilty and agreed to execute the stipulation to forfeit the property.  Thus, the County argued, the debtor had no interest in the seized assets at the time the bankruptcy petition was filed.
 
The bankruptcy trustee argued that the debtor had retained an interest in the assets at the time he filed for Chapter 7 bankruptcy relief and that these assets belonged in the debtor’s bankruptcy estate.
 
In entertaining a motion for summary judgment in March 2009, Judge Robert E. Grossman concluded that the seized property was property of the debtor’s estate as of the date the bankruptcy petition was filed because the civil forfeiture proceeding did not divest the debtor of title to the property.  Judge Grossman ordered Nassau County to turn over the assets to the bankruptcy trustee.
 
Nassau County was not pleased at all with the decision.  The County quickly brought a motion seeking reconsideration.  The judge confirmed his prior conclusion in a written memorandum decision [1]  just released last week which denied the County’s motion.  However, even though he reached the same result, he revised his rationale.
 
Judge Grossman provided a fairly detailed legal analysis.  As it turns out, New York state law provides that the death of a criminal defendant abates a criminal action.  This then left the status of the forfeiture action up in the air.  He distinguished the difference between pre-conviction and post-conviction forfeiture crimes.
 
Since the criminal action against the debtor died with the debtor, so, too did the stipulation.  Thus, the County no longer had a lien on the property.
 
The matter may not be totally over, however.  Judge Grossman permitted the County to commence a forfeiture action against the seized property, although he commented that Trustee Kirschenbaum has the right to assert any defenses it has under the Bankruptcy Code including those granted under Bankruptcy Code § 544(a).
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Incidentally, the debtor received his discharge three weeks after he passed away.
 
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