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14. The Trustee will sue a non-debtor, i. e. a third party, if that person or company received money or property from the Debtor just before the Debtor filed bankruptcy and received less than fair value in return. e.g. a gift. The Third Party can prevail if he shows that the Debtor was “solvent” when he made the transfer, or that the Trustee filed his Adversary Proceeding more than two years after the Bankruptcy was filed or if the transfer occurred to long before the Bankruptcy was filed.
15. The Trustee will sue a non-debtor – third party – if that person owes the Debtor money. The Third Party will have all the defenses that he would have in Superior Court including (a) the Statute of Limitations (b) the issue was decided the Debtors favor in an earlier lawsuit (c) the Debtor sued the Third Party for something else when he could have also sued for the money that the Trustee is now after but did not.
16. The Trustee will sue a Creditor who received a payment from the Debtor that the Debtor legitimately owed to the Non Debtor. This is true even if that payment was only an installment or a partial payment and the Debtor still owes the Non Debtor a large amount of money. This will always strike the Creditor as unfair in that the Debtor did not pay most of what he owes and now the Trustee wants to recover some of the money that the Creditor did receive, so that it will be shared proportionally with all the Debtors Creditors (after the Trustee and the Trustee’s Attorney take their large share). There are many standard defenses to this type of Adversary Proceeding, which is called an action to “Recover a Preference” (meaning that the Non Debtor was “preferred” over other creditors because he got some money just before the bankruptcy was filed while most creditors did not get any money just before the bankruptcy was filed – therefore it should be recovered and distributed proportionately among all creditors). Some of these defenses are (a) the payment was an installment made in the “ordinary course of business” (b) the
payment was made at the time the goods were delivered from the Debtor to the Creditor (c) the Creditor made later delivery of goods that was not paid for after he received the (allegedly) preferential payment (d) the Non Debtor was in fact just a “conduit” for the goods and the money and he received little benefit. Our office has been successful in defeating Adversary Proceedings to recover preferences using these standard defenses and by using additional similar less well known defenses.
17. If you did not file for bankruptcy but the person who did file for bankruptcy co-owns your home the Trustee may ask for a Court order to sell the property including your half. In some circumstances he can do this so long as you are paid the fair value of your half of the equity. You can often defeat this attempt by the Trustee by showing that the hardship on you is great compared to the small amount that will be paid to the co-owners creditors from his half of the equity. And you may also get reimbursed for the mortgage payments you made after your co-owner moved out in addition to your half of the equity, without your
co-owner getting credit for the “rental value” of his half of the home so long as he left voluntarily. This extra payment may cause the amount that can be recovered to be low enough that the Court will not order the home sold.
18. A secured debt such as a trust deed, a mortgage, a car loan or a UCC 1 remains a lien on the Debtors property during and after the bankruptcy that must be paid ahead of the trustee. You as the secured creditor may be sued by the Trustee who will allege that your security interest is “void” or “not perfected” and therefore you are “unsecured”. The secured property will be sold and the net proceeds will be divided proportionally among the unsecured claims. It is important to remember that the Trustee takes a large per cent of the total recovered and that unsecured claims are usually paid a very small “dividend” e.g. three cents on the dollar.