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Other People’s Property in Bankruptcy

July 14, 2021

Authors

Brian Walsh

Other People’s Property in Bankruptcy

July 14, 2021

by: Brian Walsh

Nearly sixty years ago, Justice Hugo Black wrote that the Bankruptcy Act of 1898 “simply does not authorize a trustee to distribute other people’s property among a bankrupt’s creditors.”  Pearlman v. Reliance Ins. Co., 371 U.S. 132, 135-36 (1962).  Though the bankruptcy statutes have been modernized and amended on a number of occasions since, Justice Black’s observation remains true today.[1]

This article summarizes the courts’ approaches to three situations in which a debtor in bankruptcy may be in possession of property that legally or equitably belongs to someone else.  What do the courts do when the third party’s rights arise or are recognized only after a bankruptcy case is underway?  Well, that’s not that simple.

  • Constructive trust.  The Bankruptcy Code’s treatment of express trusts is straightforward:  if the debtor holds “only legal title and not an equitable interest” in an asset, then the
    Read More
  • In Case You Missed It – PACA Trust Rights in Bankruptcy are Just Plain Old Secured Claims

    February 1, 2018

    Authors

    Mark Duedall and Leah Fiorenza McNeill

    In Case You Missed It – PACA Trust Rights in Bankruptcy are Just Plain Old Secured Claims

    February 1, 2018

    by: Mark Duedall and Leah Fiorenza McNeill

    Happy 2018!  We at The Bankruptcy Cave have been itching to write about the Cherry Growers Chapter 11 case – which really is ground-breaking – but the holidays, life, and yes, work for clients too, all just got in the way.  But with each passing week, the case stayed on our minds.  So now that time permits, here is the writeup – and see below for the remarkable significance of the case.

    In re Cherry Growers (now reported at 576 B.R. 569, Bankr. W.D. Mich. 2017), is a garden-variety produce-related bankruptcy case.  (Ha ha, “garden-variety” produce, get it?)  The Debtor bought produce and sold it to others, in addition to conducting other food distribution activities.  When the Debtor filed for bankruptcy, there was the typical push-and-pull between a lender secured by the Debtor’s inventory and a/r, and a supplier claiming a trust interest in those same assets, protected by the Read More

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