Question about Chapter 7 discharge and assets after.

[welcome]

So, this question is for my friend.

She filed a chapter 7 earlier this year and listed a lawsuit as an asset, as she was instructed by her attorney.

She hasn't received anything yet. But, she might. The case is over 180 days past her chapter 7 filing and her case was discharged, but the case is still open due to the lawsuit.

Is the court entitled to the assets, if she gets any, from this lawsuit?

Or, since over 180 days have passed since her Chapter 7 was filed, does she get to keep everything from the lawsuit?

[justbroke]

The short answer is no she does not get to keep the proceeds. The bankruptcy estate owns that asset (proceeds) subject to any exemptions that have been listed in the petition.

The long answer is that the 180 days is almost always misunderstood by debtors. The bankruptcy code reads that any property through bequest, bequeath, inheritance, life insurance, or marriage settlement, becomes property of the bankruptcy estate within 180 days of filing. That means it is property of the bankruptcy estate when the debtor becomes entitled to the property. It is not on the date that it is actually received, but rather when the debtor had a right to the property.

In this case, this isn't even a 180-day question. First, it is not a bequest, bequeath, inheritance, or marriage settlement. The 180-day rule is a special rule specifically for those things. The proceeds of the lawsuit was the debtor's property on the date of filing... even if they hadn't filed the suit. The debtor was entitled to the proceeds of the lawsuit because the event that gave cause for the lawsuit already happened before filing.

Bottom line, this is not a 180-day question. The debtor not only became entitled to the proceeds of a lawsuit related to some claim prior the bankruptcy, they also filed a lawsuit prior to filing the bankruptcy (not that the filing would matter). Simply put, the proceeds are property of the bankruptcy estate subject to any exemptions.

[vhs]

thanks for the reply.

[vhs]

thanks.

[despritfreya]

Unless there is an exemption that you can claim, the cause of action (lawsuit) belongs to the Trustee in a Chapter 7. The Trustee, and only the Trustee, has the right to settle, prosecute or abandon the asset. The bankruptcy attorney should have made that clear.

You or your friend, as the case may be, should do nothing with the lawsuit unless and until the Trustee abandons it. Discuss this further with the bankruptcy attorney.

As to the 2 year issue, that deals with preference and fraudulent conveyance claims. A Chapter 7 Trustee has 2 years to file a Complaint to recover them.

Des.

[vhs]

Unless there is an exemption that you can claim, the cause of action (lawsuit) belongs to the Trustee in a Chapter 7. The Trustee, and only the Trustee, has the right to settle, prosecute or abandon the asset. The bankruptcy attorney should have made that clear.

You or your friend, as the case may be, should do nothing with the lawsuit unless and until the Trustee abandons it. Discuss this further with the bankruptcy attorney.

As to the 2 year issue, that deals with preference and fraudulent conveyance claims. A Chapter 7 Trustee has 2 years to file a Complaint to recover them.

Des.

Appreciate the response.

[despritfreya]

Appreciate the response. All the information concerning the lawsuit was given to the trustee, but they never did anything but contact the attorney handling the lawsuit, and copied my friend in the mail. The lawsuit is going nowhere it looks. But, if the Trustee takes no interest in the case, what happens? It looks like they have abandoned the case?

While the Trustee may have dropped the ball relative to prosecuting the lawsuit, the asset is not abandoned until either, the Trustee files (and the court approves) a Notice of Abandonment or the case is closed. Until one or the other happens, the lawsuit belongs to the Trustee. The Debtor can file a Motion to Abandon thus forcing the Trustee to either "put up or shut up", but that would need to be discussed with the bankruptcy attorney.

Please note that the entry of a Discharge has no impact on this issue.

Des.

[vhs]

Thanks again.

[despritfreya]

Thanks again.

One last question...what if the case was closed, but there was a confidential agreement and the trustee was never involved in the case? It is so tricky, but wouldn't the confidential agreement be null and void if the person let the trustee in on it? also, what role does the debtor have once the case is turned over and the debtor was fully transparent in the situation?

Generally, if an asset is properly disclosed on Schedule A/B and the case is closed without the Trustee administering the asset, the asset is returned to the Debtor. The Debtor should be in the exact same place as he/she was in relative to the asset as if the bankruptcy had not been filed. However, the devil is in the details and, not knowing exactly what is going on means you (or your friend) need to be discussing this with the attorney as my comment is general in nature.

Des.

[vhs]

Generally, if an asset is properly disclosed on Schedule A/B and the case is closed without the Trustee administering the asset, the asset is returned to the Debtor. The Debtor should be in the exact same place as he/she was in relative to the asset as if the bankruptcy had not been filed. However, the devil is in the details and, not knowing exactly what is going on means you (or your friend) need to be discussing this with the attorney as my comment is general in nature.

Des.

Really appreciate you.

[vhs]

lots to consider here. thanks again for your feedback.