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Forced bankruptcy & location of assets hidden by trusts (IN RE: BLIXSETH)

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  • Question: Forced bankruptcy & location of assets hidden by trusts (IN RE: BLIXSETH)

    In RE: Blixseth, the 9 circuit Court of Appeals reversed a Nevada bankruptcy court decision and has reinstated the forced bankruptcy case against former billionaire Timothy Blixseth filed by the State of Montana for failure to pay taxes.

    9th Circ. BAP found: The bankruptcy court erred in finding that, for venue purposes: (i) intangible assets (here, equity interests in a NV LLC and LLLP) have no location or (ii) alternatively, such assets are located at the debtor's residence.

    Here, the alleged involuntary debtor's principal assets were his interests in a Nevada LLC and LLLP. These are intangible interests which have no physical location. The location or situs of intangible property is a "legal fiction." For bankruptcy venue purposes, the principal place of assets should logically be construed in a way most resonant with the functional concerns of the administration of the bankruptcy estate since all assets in question will be administered by a trustee serving under the jurisdiction of the forum court. Thus, the bankruptcy court erred by taking a bright-line approach. Under the circumstances of this case, the equity interest should be considered to be located in Nevada, even though the debtor did not live there or physically do business there. Thus, venue was proper in Nevada.

    What implications does this have for others who seek to protect their assets through trusts located in states other than those where the assets exist? Given it took several years from the point at which these assets were moved into Nevada (2008) until this final ruling allowing the forced bankruptcy case (for debts owed prior to 2009) to move forward and during which time the majority of these assets were disposed of - it appears the debtor (Blixseth) while being forced into bankruptcy will have used the courts to avoid having to pay anyway, so is this a moot point and can the tactic of hiding assets in remote states still be effective?

  • #2
    First welcome as a new member. Second, as a very interesting article to note, the question poses another answer: This Forum cannot legally answer your question and if it could, it would (in my opinion) be tantamount to aiding in concealment of assets which this forum WILL NOT allow. Rhetorically speaking, it is an interesting question. If any of our lawyer members could comment that would be well. 'Hub
    If I knew it all, would I be here?? Hang in there = Retained attorney 8-06, Filed 12-28-07, Discharge 8-13-08, Finally CLOSED 11-3-09, 3-31-10 AP Dismissed, Informed by incompetent lawyer of CLOSED status, October 14, 2010.

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    • #3
      Thanks for the info - I certainly wasn't looking to aid any concealment of assets or anything illegal. It appears this tactic has been used in this case and others. I was curious if this is closing a loophole or setting new ground to prevent this from happening? It appears in this case that the debtor has been able to successfully use the courts to delay and prevent creditors from getting any final judgments and the debtor used loopholes like this to try and protect assets from creditors. Is this debtors case/tactics extreme or common place and either way is this ruling a significant signal that such tactics are not going to be allowed in the future?

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      • #4
        I don't think it means anything in the grand scheme. Both Jurisdiction and Venue has always been issues. Anyone, including creditors, could fight on Venue. There is no way to protect assets by scattering them across several jurisdictions. The question of Venue can always be argued as to whether it is the debtor's primary location of business or residence... or assets.

        I don't even think this is a real question for the super-majority of people on BKforum since we tend to deal mostly with individual consumer bankruptcies and not those that have amassed assets all over the place.
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

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        • #5
          Originally posted by CinAn View Post
          What implications does this have for others who seek to protect their assets through trusts located in states other than those where the assets exist?
          Creditor protection trusts is a very specialized area of law and the laws vary by state. I work with very experienced estate planning attorneys who do very complex estate planning and they refer clients with creditor concerns to specialists. My understanding is that it is generally very difficult to create a trust for yourself that will be protected from your creditors, especially if you are already in debt.
          LadyInTheRed is in the black!
          Filed Chap 13 April 2010. Discharged May 2015.
          $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

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