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Massachusetts Agencies

Chapter 7 Bankruptcy: Taking Title from Trustee

Bankruptcy

A Chapter 7, or "liquidation" bankruptcy, will involve a trustee in bankruptcy, who id the party from whom title will be acquired. Following is a check List of the things to keep in mind when taking title from a trustee in bankruptcy.

Trustee may sell property only after notice and a (right to a ) hearing.

Twenty days notice prior to sale is required to be given to the debtor, trustee and all creditors. Rule 2002.

Certificate of mailing must be reviewed to establish mailing was timely and to proper parties.

Notice must:

  • Describe sales price and other terms
  • Identify purchaser
  • Contain description (general or legal) of property
  • State time within which objections must be filed

Objections:

  • If objections made, court must hold hearing
  • If not made, sale may proceed

Order:

  • Not necessary if no objections have been filed (but preferable and court will usually sign one if it's prepared—completes chain of title)
  • Necessary if there have been objections
  • Should:
    • Describe property
    • Identify purchaser
    • Recite proper notice was given
    • No objections were timely filed

Appeals from Order

  • Ten-day appeal period

Can be longer, if extensions granted

  • Runs from time Order docketed (not from time judge announced or signed Order)
  • Caveat: Notice of appeal may have been received by clerk before expiration of 10-day period, even though notice of appeal not docketed

Taking Title Before Appeal Period Has Expired

  • Technically, under prior law, a sale pursuant to Order will not be invalidated even if the Order is later reversed on appeal, unless the Order was stayed by the court. This is based on Section §363(m) of the Bankruptcy Code, which provides:

    "The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to any entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal."

  • However, this has now been changed by Bankruptcy Rule 6004(g), which provides:

    "An order authorizing the use, sale or lease of property other than cash collateral is stayed until the expiration of 10 days after entry of the order, unless the court orders otherwise ."

    The rule leads to the conclusion that the default situation is exactly opposite to that previously in place, i.e., that the order now is stayed without any action on the part of the court and that for the statute's provisions to apply it is presently necessary for the court to enter an order lifting the stay.

Effect on Liens and Encumbrances

None (unless sale specifically free and clear of liens) 

Form of Deed

"John Jones, Trustee of the Bankruptcy Estate of May Smith . . ."