Bankruptcy expert Leon Bayer answers real-life questions.
Help! I filed Chapter 7 bankruptcy, and I have run into big trouble with the bankruptcy trustee. I have three cars (all nonexempt) that I want to keep if I can reach a fair deal to buy them back from the trustee. I have a 1986 Toyota pickup (hunk of junk), 1991 motor home (hunk of junk,) and my main vehicle which is a 2006 Toyota RAV 4. The trustee and I agree that a fair buyback amount for the RAV 4 is $7,000. But the trustee insists I must also buy back the two other vehicles in an all or nothing deal, for $21,000. Can the trustee insist that I do this in order to get my RAV 4 back? Is there anything I can do?
There are things you can do. But first you should understand the bankruptcy trustee’s role and obligations. First, the bankruptcy trustee has the discretion to use “ordinary business judgment” when it comes to selling assets. This allows a trustee to decide the best way to sell a group of assets — individually or as one lot. A trustee also has a duty to maximize the money and assets in your bankruptcy estate by selling nonexempt assets for the best price possible. (To learn how Chapter 7 bankruptcy works, the difference between exempt and nonexempt property, and more, see Nolo’s Chapter 7 Bankruptcy area.)
A trustee can’t legally give anybody a ”sweetheart deal.” A trustee also has the discretion to abandon any nonexempt assets (which mean they go back to the debtor) where such assets have “inconsequential value.”
Here, the trustee may feel that the value to the estate is maximized by selling everything in one single lot, the same way delinquent storage lots are sold to the public, ”winner take all.”
However, the trustee may believe your “junk” cars have no real value, and is playing poker with you to get a better price. You may have some good cards of your own to play.
Negotiate With the Trustee
You can make a counteroffer to the trustee. For example, in this situation I might tell the trustee that my client will not pay more than the $7000 already offered; if the trustee doesn’t accept this offer within 24 hours, it will drop to $6000; and if not accepted at all, the trustee can come pick up the whole kit and caboodle immediately.
If the trustee is bluffing to squeeze more money out of you, this might force the trustee’s hand.
Bid at the Auction
If the trustee proceeds to offer the vehicles for sale, it is typical that the vehicles will be towed away to an auction yard.
Guess what? You are entitled to bid at the auction. You can attend the auction with your $7000, and bid under the same bidding rules as anyone else.
And you might even be able to buy the RAV 4 for far less than the $7,000 you originally offered. Here’s why. Bidders at these auctions typically inspect the items, but are not allowed to take a test drive and aren’t even allowed to start the engines. Items are sold ”as is.” This works to your advantage because other buyers can’t really be sure of what they might be buying.
You alone know the actual mechanical condition of each vehicle. That gives you a tremendous bidding advantage. At the price point where strangers will stop bidding, you may keep bidding confidently and win the auction because you know what you are really getting. At the end of the day, you may come out a very big winner, and the trustee may learn not to be so darn cocky.
Best of luck to you, Stanley!
Guest blogger Leon Bayer practices bankruptcy law in Los Angeles, California. He is a partner at Bayer, Wishman & Leotta.
The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo. By answering a question on this blog, Mr. Bayer does not become your lawyer.