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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38910
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Is it legal for a bankruptcy trustee to ask the debtor to bid

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Is it legal for a bankruptcy trustee to ask the debtor to bid on a business interest that has become property of a bankruptcy estate knowing the partners in that LLC will keep bidding. The trustee's goal was for me to bid $45,000 because he knew the partners in the LLC would bid $50,000. The trustee said if I bid it up, he would abandon my other business which is $300,000 under water. I bid it up and now he doesn't want to abandon my other business because I changed my $5,000 exemption to the business he "sold" and he won't make as much money. Is this considered "collusion in bidding"? And if so, is it illegal and/or unethical" I have documentation via emails to prove all of this.
Thank you,
Carmen Wilson

Please note at the outset that I am reviewing your question as if I were sitting as the bankruptcy court judge -- because ultimately, that's who you would have to convince to order the trustee removed from your case or sanctioned for committing a wrongful act.

The bankruptcy trustee has a duty to maximize the value of the debtor's estate assets for the benefit of the unsecured creditors. So, trying to get the bid as high as possible is lawful.

The act of offering to abandon estate property in exchange for a bid by the debtor is an enforceable contract between the debtor and trustee. So, if the trustee backed out of the contract, then that is a breach, and you have a claim for damages against the trustee for the value of the property that he now refuses to abandon.

Trustee may argue (1) he never made the deal, and you will have to prove an oral agreement -- which is typically impossible; or (2) your modification of your claim of exemption has changed the reasonable expectations of the parties to the original agreement -- and this should permit the trustee to rescind the offer based upon mistake.

You may argue that you have a right to modify your petition to claim a legitimate exemption, and the trustee as an expert in bankruptcy law, is not justified in relying on any collateral actions that you might take concerning the agreement on the bid. In short, the trustee bears the risk of his mistake, so he can't rescind the original agreement.

Assuming that my analysis is correct (and, although you don't know me, I'm rarely incorrect in analyzing a legal issue), then:

1. You have a claim against the trustee for breach of contract, which you will probably have to bring to the bankruptcy court as a motion for removal and for sanctions, because generally speaking, the trustee can't be sued for actions taken during a bankruptcy proceeding -- without the court's consent.

2. Assuming you were to win, you would have to show that the value of the underwater business is greater than zero, because otherwise, you have no damages that the court can award.

3. If the trustee simply denies ever making the deal with you, then you need some documentary proof, or an objective witness who overheard the conversation, to show that there was an agreement on the bid. Otherwise, it's your word against the trustee's, and in civil court, all ties go to the defendant.

BotXXXXX XXXXXne, if the trustee admits the oral agreement, or you can prove it independently, then you can win, but your damages may be zero. And, if the trustee denies the agreement and you can't prove it independently, then you lose.

Please understand that I have no interest in providing you with anything less than a completely satisfying answer. However, if the law does not favor your unique circumstances, then the best that I can do is to explain what the law "is" and what it "is not” – and hopefully save you from wasting time continuing to look for an answer that does not exist.

In this circumstance, there are a lot of variables which rely on quality of proof to push the result in favor of either party. So, it's impossible to be absolutely definitive. Hopefully what I have provided you will allow you to decide whether or not it's worthwhile for you to pursue this with the bankruptcy court.

Please let me know if I can clarify or assist you further.

socrateaser and other Bankruptcy Law Specialists are ready to help you
Customer: replied 4 years ago.

At the time of bankruptcy, the business was worth $0.00. The trustee called the partners and asked them if they wanted to buy my shares. They said "no it's not worth anything". The trustee held onto the asset and it began to make money. Then sold it to the partners for $50,000. I would have received $91,010.00 in income for 2012. So yes, there are damages. And yes, I have email from my attorney stating that my attorney had spoke to the trustee AND his wife/legal assistant that I would change my exemption, which the trustee denies, but my attorney will attest. So there is a breach of contract. Correct?

Your allegations suggest that there was a contract and it was breached by the trustee. You will still have to prove this in court -- assuming your evidence is all admissible (something I can't evaluate in this forum), then you would have a case.

Best wishes.