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Brent Blanchard
Brent Blanchard, Bankruptcy Attorney
Category: Bankruptcy Law
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Experience:  Twelve years experience in all aspects of debtor & creditor BK.
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Recently I put two real estate projects into Chapter 11. Subsequently

Customer Question

Recently I put two real estate projects into Chapter 11. Subsequently I submitted a Bonded International Promissory Note drawn on the US Department of Treasury for the full debt on both properties. In fact the amount submitted was approximately 20% greater than what is owed. The note was made payable to the US appointed Trustee. The note was subsequently discussed with the bankruptcy judge who indicated that he wasn't going to accept it because he wasn't aware of payments made for debt other than by wire trasnsfer or possibly cash. Why wouldn't the judge have instructed the Trustee to negotiate the instrument?
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Fran-mod replied 2 years ago.
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Expert:  Brent Blanchard replied 2 years ago.
Thank you for your question.

Please know that it is quite difficult to "climb into" someone else's head to explain what they did or didn't do, even IF we have the benefit of seeing the document or instrument referred to, plus the benefit of either reading a record of the proceedings or being there in person.

Negotiable instruments get dishonored or declined under the appropriate Article of the Uniform Commercial Code all the time. The process of presentment can take up to 20 days, during which time it might appear that the instrument has "cleared" but it really has not yet. These facts are the heart of the "refund" or "overpayment" scams which now challenge the "advance fee" scams for being the most common successful means of fraudulently obtaining other peoples' money.

Bankruptcy Courts are all about getting "good funds", so they prefer wire transfers or cash.

There is also substantial risk of incurring large dishonored instrument fees if an unconventional payment mode is attempted and the instrument is later dishonored or declined.

You also describe the instrument as being drawn on the US Treasury, but it is a "promissory note"--the process of authenticating the validity of such a piece of paper before presenting it is quite likely to fall so far outside the norm that the Trustee and the Judge simply don't want to bother with it.

It sounds from your question like this is a promissory note which you obtained from somewhere else and which was endorsed over to the BK Trustee. Regardless of the source, there remains some question regarding how such an instrument could be "drawn on the U.S. Treasury" without it being the normally-auctioned off T-Notes or T-Bills or other regularly-traded debt instruments. Your description implies that it is not.

Further, it is unclear whether this instrument is an asset of the Debtor and therefore the BK estate, or an asset of a third party or Insider which is being presented in an attempt to purchase some asset from the BK estate.

To answer ALL of these uncertainties, it would be much more appropriate to consult with the Chapter 11 BK attorney handling the case. If the case was filed without an attorney's participation, getting professional legal advice quickly is highly recommended--Chapter 11s are complicated enough that the vast majority of BK attorneys don't touch them. They really do demand specialized knowledge and expertise.

Thank you.

Expert:  Brent Blanchard replied 2 years ago.
I would like to add this, which I had looked up but forgot to include:

Your description of the Promissory Note does not indicate whether it satisfies the requirements for negotiability under the UN Convention (treaty) from 1988 which governs them in most nations, including the US:

Any further pursuit of the issue would likely be worthwhile ONLY if the instrument was validly drawn and also satisfies all requirements of the United Nations Convention on International Bills of Exchange and International Promissory Notes.

Or perhaps you could just negotiate it yourself (IF whom it is payable to can be changed) and present the cash to the Court. After all, you describe it as being for about 20% more than the debts at issue in the BK case.

Thank you.

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Brent Blanchard
Brent Blanchard
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Twelve years experience in all aspects of debtor & creditor BK.