I am a creditor in a Chapter 13 case. The debtor has a bankruptcy lawyer and a general lawyer for another case, and debtor had property (trailers) that was not disclosed on any schedule of assets. I know that the schedule of assets is required to compute the best interest of creditors number. The debtors transferred one of their trailers to their general lawyer in exchange for unpaid legal fees. The general lawyer has recently claimed that permission to take her clients trailer was granted by her clients bankruptcy lawyer (outside of the Court). Is transfer of real property like this during a Chapter 13 permissible when the plan had not been confirmed and the best interest of creditors number was trying to be established by my side? After the transfer of the property the client converted their case to a Chapter 7 liquidation.
State/Country relating to question: Oregon
I already have a bankruptcy lawyer to represent my interests but want an informed opinion prior to my conversation with him.
Is transfer of real property like this during a Chapter 13 permissible when the plan had not been confirmed and the best interest of creditors number was trying to be established by my side?
Response: No, it is not permissible, without prior authorization of the Bankruptcy Court. This kind of Property Transfer must be approved by the Bankruptcy Court. The debtor's general attorney is like any other creditor but has received a preferential treatment of his debt. The Chapter 13 trustee may void this transfer as preference under 11 U.S.C. Section 547 (a). You of course need to file objection to the transfer with the Bankruptcy Court and if necessary object to the debtor getting discharge of his debts in bankruptcy if he does not recover the trailer from his general attorney.
Sorry, it should be 11 U.S.C. Section 547 (b).
You didn't address my questions fully, please clarify. Your advice is to ask the 13 trustee to void the transaction but this was converted to a chapter 7 so there is a new trustee. Do the same rules apply because the transfer happened during the purview of the 13 trustee, which is now before the 7 trustee, who may or may not want to bother with going through the steps of voiding the transaction?
Ok. Thanks for the clarification.
You can bring this matter up to the Bankruptcy Court by filing objection to the bankruptcy case, by pointing out to the Bankruptcy Court that a preferential transfer was made during the insolvency of the debtor; that the debtor transferred her trailer to pay her non-bankruptcy attorney during his prior Chapter 13 case without the prior authorization of the Bankruptcy Court. Since the case has been converted to a Chapter 7, you should bring it to the attention of the Chapter 7 Bankruptcy Trustee who may or may not be interested in avoiding the transfer based on the value of the trailer. You should also contact the Office of the US Trustee in your Region about this transfer. The Office of the US Trustee acts as the supervisor to Chapter 7 Trustees.
In addition, you may file objection to general Discharge of the Debtor pursuant to 11 U.S.C. Section 727:
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