Trustee Blog

Bankruptcy Preferential Transfer

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Today at the hearings Riverside Bankruptcy Trustee Larry Simons had something happen that he said he had not seen in his 20 years of bankruptcy. Trustee Simons role in a bankruptcy case is to protect the interest of the bankruptcy estate. If a debtor has nonexempt assets or potential assets, the trustee is required to collect those assets for the benefit of the creditor body.

In the case that happened today, a debtor had only one creditor. The creditor had a million dollar judgement against the debtor. There were no other creditors listed in the petition. Prior to the filing of the bankruptcy, the million dollar judgement creditor levied on the debtor and obtained $30,000.00. This money was taken by the creditor from the debtor within 90 days of the filing of the bankruptcy.

In most cases, a bankruptcy trustee would ask the creditor to give back the money as a preference that the creditor received over other creditors in the case. The Trustee would then use the $30,000 received back into the estate and pay his fee and split the rest between all the creditors. As we have mentioned in previous posts, the trustee’s fees would be almost $4000 for performing this service in addition to any litigation costs.

The problem in this case though, is that there were no other creditors in the case. The taking of the $30,000 was not to the detriment of any other unsecured creditors. There is no preference here.

In addition, if Mr. Simons recovered the $30,000 from the creditor, he would have to give it back to the creditor. So while Mr. Simons has the ability and the right to ask for the money back, he may not take action against the creditor as no other creditor was harmed.

As Mr. Simons said, he had not seen this before. Nor had I seen such a thing as well. Unfortunately for Trustee Simons, he may be out of his statutory fee because the debtor only had one creditor.



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