Trustee Blog

11 U.S. Code § 363 – Use, sale, or lease of property

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Recently at the creditors hearings of Riverside Chapter 7 Trustee Larry Simons he mentioned a case in which the chapter 7 trustee was selling a house of a debtor who filed bankruptcy. The debtor was married, but he chose to file the chapter 7 case by himself. The chapter 7 trustee assigned to the case determined that a house the debtor owned had equity that could not be exempted.

The Chapter 7 trustee held an auction on the house and the house was sold to a third party. The next day, the spouse of the debtor offered the trustee a full price offer for the house. The offer was for the same price that the third party buyer offered.

Mr. Simons pointed out that under 11 U.S.C. 363(i), the trustee in that case had to consider the debtor’s spouse’s offer. See 363(i):

“Before the consummation of a sale of property to which subsection (g) or (h) of this section applies, or of property of the estate that was community property of the debtor and the debtor’s spouse immediately before the commencement of the case, the debtor’s spouse, or a co-owner of such property, as the case may be, may purchase such property at the price at which such sale is to be consummated.”

The issue in the case now is when is the sale “consummated?” Mr. Simons said there is very little law on the matter and it will have to be decided.

The interesting thing about this situation is that a co-owner or a spouse seems to have a “right of first refusal”. The situation may not come up too often, but it is good to remember this little code section.

Practice Pointer: As real property prices continue to climb, more and more trustees will be selling real property that cannot be exempted. Keep this code section in your tool kit.



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