How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask socrateaser Your Own Question

socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36190
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
Type Your Bankruptcy Law Question Here...
socrateaser is online now
A new question is answered every 9 seconds

Last year a firm that managed my two rental homes. In May,

Resolved Question:

Last year a firm that managed my two rental homes. In May, the mngmt company stopped sending my monthly check for the rents they collected on my behalf. After many unsuccessful attempt to contact someone from their office, in early August I learned through the local press that during an audit they had discovered 1.5 million dollars had gone missing from the account that they used for collecting/distributing rent $ for their many clients. The couple that ran the company accused their rental manager of embezzlement and the FBI got involved. In early September, the state board of realtors here in AZ suspended the brokers license of the gentleman that operated the firm, and he and his wife were ordered to "cease and desist" their operation. They were told to stop collecting rents and do what they could to straighten out their financial situation. The couple began selling many of their own 800 properties to repay their clients the rent monies that had not been sent to them during the summer. On Sept 23rd, I received a cashiers check for approx. $7,000 from the management firm. Shortly after that, I learned that the couple had filed for chapter 7 . Since I had received some of the funds (not all) that I was owed by the firm, I decided not to get on the list of creditors that were seeking $ from the chapter 7 process. 2 months AFTER the deadline to get on that list, I receive a letter from the trustee of the court handling that case informing me it was to return the funds I had received. She further explained that it was "unfair" that I should have been sent the money and now I am being sued! Is this fair?
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 2 years ago.

You ask whether or not it's "fair" that the trustee sue you to recover the rent money owed to you by the property management company/broker. I think the answer to that is self evident. However, the real question is two-fold: (1) is the trustee's suit legal; and (2) if yes, then can you prevail based upon the law?

The answer to #1 is that the trustee is entitled to sue anyone who he believes has received a "preference" transfer of funds within 90 days of the filing of the debtor's bankruptcy petition. A preference transfer is defined in Bankr. Code 547(b) -- and without getting into the greasy details, if the broker/debtor paid you the $7,000 from the debtor's personal accounts, rather than from the property management trust accounts, then there is an argument to be made that the transfer is avoidable by the trustee, and that you would be obligated to return the money.

However, if the money was paid from the debtor's property management account, then the trustee has no right to the money because, the transfer of property that the debtor held in trust for another is not a voidable preference. Trust assets are not “property of the estate,” and their transfer does not diminish the assets available to creditors. Begier v. United States I.R.S. (1990) 496 US 53, 59, 110 S.Ct. 2258, 2263. Whether property is truly held in trust for another is determined by reference to state law. In re North American Coin & Currency, Ltd. (9th Cir. 1985) 767 F2d 1573, 1575. And, under Arz. Rev. Stat. 32-2174, rental property proceeds are held in trust for the property owner.

There are other numerous and complex twists and turns to the legal issues here -- and that, frankly, is what the trustee is counting on -- because, the trustee knows that you will have to expend at least $7,000 just to hire a lawyer to defend the lawsuit, and since you cannot get your attorney's fees reimbursed, without filing a counterclaim against the debtor for breach of fiduciary under the original property management agreement, you will have to come out of pocket with your lawyer's legal expenses, and then wait to see if you ultimately prevail in the action against the trustee.

So, now you have a choice: you can contact the trustee and offer to settle the matter for less than the $7,000 (pick a number, start high, work down to 50/50). The trustee will also have to expend legal fees to collect from you -- so, you do have negotiating room. Moreover, if the trustee were to lose against you, then other creditors could use the same rationale to defend their transfers. In fact, you could look at the creditor list in the bankruptcy court, contact them all and see if you could pool your funds to hire a lawyer to defend all of the cases as one case, since all of your claims are substantially identical. That could cause the trustee to settle quickly, because suddenly, he has a lot to risk or gain on the basis of a single lawsuit. That's probably what I would suggest were I representing you.

BotXXXXX XXXXXne here, you have a pretty good case that the trustee cannot have the money -- but, to win, if you fight on your own, will cost you at least as much as the $7,000 you have been paid. So, you need to get together with other creditors who have also received payments from the debtor and see if you can "do a deal."

Or, you can just contact the trustee, make a settlement offer and see if the trustee will "bite."

For a competent creditor's bankruptcy lawyer referral, should you need one, see this link.

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36190
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and other Bankruptcy Law Specialists are ready to help you

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Previous | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK

Meet The Experts:

  • Terry L.


    Satisfied Customers:

    Better Business Bur 15yrs bankruptcy experience. Chicago Bar
< Last | Next >
  • Terry L.'s Avatar

    Terry L.


    Satisfied Customers:

    Better Business Bur 15yrs bankruptcy experience. Chicago Bar
  • cortrightlaw's Avatar



    Satisfied Customers:

    Attorney practicing Bankruptcy Law including Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
  • JoeLawyer's Avatar



    Satisfied Customers:

    Attorney in the practice of Bankruptcy Law since 1996
  • Brent Blanchard's Avatar

    Brent Blanchard

    Bankruptcy Attorney

    Satisfied Customers:

    Twelve years experience in all aspects of debtor & creditor BK.
  • A.J.'s Avatar



    Satisfied Customers:

    Experienced consumer bankruptcy attorney.
  • Fritz's Avatar



    Satisfied Customers:

    Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
  • Law Girl's Avatar

    Law Girl


    Satisfied Customers:

    I am an attorney.