California Court Discusses Appealing the Sale of Litigation Claims in Bankruptcy

When a party files for bankruptcy, the party’s property and assets will typically be transferred to the bankruptcy estate. This includes not only tangible assets, like personal property, but also potential sources of recovery, like litigation claims. Recently, a California court discussed sales of litigation claims in the context of bankruptcy, in a matter in which the debtor filed an appeal challenging the validity of the sale of her claims. If you are overwhelmed by debts, you may be eligible to file for bankruptcy, and it is advisable to meet with a trusted California bankruptcy attorney to determine your rights.

The Debtor’s Claims

It is reported that the debtor filed for Chapter 7 bankruptcy. During the course of proceedings, the bankruptcy court approved the sale of her litigation claims pursuant to 11 U.S.C. section 363. The debtor then filed an appeal, challenging the validity of the sale. The Chapter 7 trustee assigned to the case argued that the sale was permitted, or alternatively, that the debtor’s appeal was moot. Upon review, the court agreed with the trustee’s latter assessment, dismissing the appeal as moot.

Appealing the Sale of Litigation Claims in Bankruptcy

Under the applicable case law, if a bankruptcy court applies section 363 for the sale of claims in accordance with a settlement agreement, all parties must comply with the requirement imposed by section 363 regarding seeking a stay. In cases in which a sale is not stayed pending appeal, as long as the sale was made in good faith and cannot be set aside under state law and is not otherwise subject to a right of redemption provided by a statute, the appeal will be deemed moot.

In other words, the mootness rule of bankruptcy applies when a party failed to obtain a stay from an order permitting the sale of assets belonging to a debtor. In the subject case, the court explained that there was no dispute that the debtor failed to stay the sale of her claims pending her appeal. Further, the court noted there was no evidence of collusion between the trustee and purchaser or other bidders, fraud, or any other attempt to grossly take unfair advantage of the bidders. As such, the bankruptcy court’s finding that the sale was in good faith was not incorrect as a matter of law.

Additionally, the court found that the debtor’s arguments in favor of setting aside the sale under state law relied on the premise that her litigation claims were not part of the bankruptcy estate, which was clearly incorrect. Thus, the court deemed the appeal moot.

Speak to a Knowledgeable California Bankruptcy Attorney

It is important for people considering filing for bankruptcy to understand how the proceedings may impact any of their claims and assets. If you are interested in seeking debt relief, it is advisable to speak to an attorney to determine whether bankruptcy is an appropriate choice in your case. Attorney Matthew D. Roy can assess your liabilities and assets and advise you of your options for regaining financial control.  You can reach Mr. Roy via the online form or at (916) 361-6028 to set up a conference.

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