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. Continue reading