California Court Discusses Valuing Assets of Bankruptcy Estates

It is not uncommon in Chapter 7 bankruptcy proceedings for the courts to permit the Trustee to sell the property of the bankruptcy estate. While it is within the courts’ authority to allow such sales to occur, they must ensure that any property is sold for its optimal value in consideration of the circumstances. Recently, a California court addressed the issue of how a property’s optimal value is determined in a matter in which a party with a lien against the debtor’s estate argued that an asset was sold for less than it was worth. If you have questions about how filing for bankruptcy may impact your property rights, it is wise to talk to a California bankruptcy lawyer promptly.

Facts of the Case

It is reported that the debtor and the claimant were business partners who engaged in a series of real estate investments in the late 1990s. Their relationship deteriorated over time, and the claimant divested himself of his interests in their joint assets. The debtor agreed to pay him for said interests but failed to do so, and the claimant ultimately obtained a $34 million judgment against him.

Allegedly, the debtor filed for Chapter 7 bankruptcy and an adversary proceeding seeking relief, including the mandatory subordination of the claimant’s judgment. The court granted the motion. At the same time, the Trustee filed a motion asking the court to authorize the sale of one of the debtor’s properties free and clear of liens for $18 million, even though the claimant assessed its value at $25 million. The property ultimately sold at auction for $20 million, and the claimant appealed the sale order.

Valuing Assets of Bankruptcy Estates

On appeal, the claimant argued that the bankruptcy court abused its discretion in approving the sale price of the property, as it was far below its fair market value. The court explained that when the sale of an estate asset is part of the ordinary course of the business of an estate, a bankruptcy trustee must seek court approval following notice and hearing in order to sell the property.

In turn, the bankruptcy court must make sure that the sale realizes the optimal value of the estate under the facts of the case. In the subject case, the court noted that the property in question was grossly overvalued initially, its sale value nonetheless reflected its fair market value. Thus, the court upheld the trial court’s ruling.

Confer with a Skilled California Bankruptcy Attorney

Bankruptcy can provide people with substantial debts with much-needed relief, but it may require them to relinquish certain property and assets. If you have questions about bankruptcy and whether it is an appropriate option for you, it is smart to confer with an attorney. Matthew D. Roy is a skilled California bankruptcy lawyer who can advise you of your rights and the implications of filing for bankruptcy and help you to determine how to proceed. You can contact Mr. Roy through the form online or by calling (916) 361-6028 to set up a meeting.