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Advice for Small Business purchasing property from someone Filing Bankruptcy

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    Advice for Small Business purchasing property from someone Filing Bankruptcy

    Hello forum members, we are new to the site and came here for advice regarding a possible transaction involving bankruptcy.

    The details: private seller who has a large diecast airplane collection worth approximately 25k-50k. Private seller about to file for bankruptcy (chapter 13) in the state of Oregon. Private seller will be forestalling bankruptcy filing in order to possibly sell this diecast collection to a small business "at arms length". The small business is purchasing this collection under value at the price of $13,000 in order to resell for profit. The small business has no relationship to the seller and came across his collection via a craigslist post detailing the sale of the large collection.

    As the small business, my wife and I came across some basics about how both chapter 7 and 13 bankruptcy proceeds. According to our research, it looks like the private seller may be committing fraud by selling the collection this close to bankruptcy, but his lawyer is advising this transaction as being legal and above board. It appears that a collection like this is non exempt and that a state trustee would likely challenge the bankruptcy if shown the details of the transaction.

    We are not legal experts, but are hoping to find some guidance about how to proceed with a transaction like this. Attorneys in our area charge quite a lot of money for their time, but we are hoping for just some small amount of advice on how we should proceed. Any advice, guidance or responses are appreciated and we applaud this forum for existing.

    Thanks for your time in reading!

    #2
    You must somehow insure that the price is at reasonable "market value". For a collector, selling at "wholesale value" may be acceptable.

    Here's the issue. The soon-to-be debtor will list this sale of an asset in his/her Statement of Financial Affairs. The Trustee will see the large sum of money and then poke around trying to figure out if this is what they call an "avoidable transfer". That's fancy BK-speak for a transaction that can be undone.

    The Trustee could try to clawback the property or the money.

    It is not illegal and certainly not a fraud if done correctly. The question is really one of... how much risk and exposure am "I" willing to accept.

    Personally, I might stay away from this sale if you know that the person is going to file bankruptcy in the next 90 days!
    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

    Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

    Comment


      #3
      Originally posted by justbroke View Post
      You must somehow insure that the price is at reasonable "market value". For a collector, selling at "wholesale value" may be acceptable.

      Here's the issue. The soon-to-be debtor will list this sale of an asset in his/her Statement of Financial Affairs. The Trustee will see the large sum of money and then poke around trying to figure out if this is what they call an "avoidable transfer". That's fancy BK-speak for a transaction that can be undone.

      The Trustee could try to clawback the property or the money.

      It is not illegal and certainly not a fraud if done correctly. The question is really one of... how much risk and exposure am "I" willing to accept.

      Personally, I might stay away from this sale if you know that the person is going to file bankruptcy in the next 90 days!


      Thank you very much for the response. As you can imagine the alarm bells were ringing when hearing about the impending bankruptcy filings. To our understanding the trustee can demand the items back or demand fair value if we had resold these collectible planes.

      His lawyer has probably found a clever way to circumvent the laws of non exempt property, but it doesn't sound like a sound risk for us to take. I wonder, if it is possible to still purchase these planes from his estate after he files bankruptcy. Could I ask the owner of the planes to mention our offer to the trustee appointed by the state of Oregon?

      As you can imagine the value for 1,450 diecast planes, out of box is almost impossible to recoup. The banks would likely have to approach an estate service or auction house which would be the lowest return on their actual value. Our wholesale offer is more than fair but we want to make sure the trustee knows about it.

      Thanks again for the timely response!

      -Anthony

      Comment


        #4
        Most Trustees will just send them to auction. Which really seems counterproductive because they'll get "auction" (fire sale) pricing and you could argue that's not necessarily market value.

        I can sense that you believe there is real value here. I can't tell you how to proceed but you do, now, understand the risk. The Trustee could claw back or undo this deal so the real question is how sound would the deal be.
        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

        Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

        Comment


          #5
          He has offered to have me sit in on a meeting with his attorney, so I suppose I can hear their advice and evaluate how it all sounds.

          It is chapter 13, which does allow this person to keep his property so it's not likely that the trustee will be sending these planes to auction.

          Any tips on what to look out for, or what questions to ask his attorney? Basically what would make this appear like more of a "sound deal"?

          Thanks again!

          Comment


            #6
            A Chapter 13 certainly makes this different, but the person needs to either exempt the property in the Chapter 13 or sell the property before the Chapter 13. I have not heard too many cases, in Chapter 13s, of the Chapter 13 Standing Trustee going after property through the "avoidance" process. I'm sure it happens in certain situations.

            It might be sound if the sale is defensible as an arms-length transaction for "market value".
            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

            Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

            Comment


              #7
              His attorney has informed him that this is indeed at "arms length" since we have no previous relationship prior to making this deal. Also, the amount of 13,000 for a large collection is not an unreasonable price, and it would be difficult for anyone (including us as market professionals) to determine the true "market" value for such a large collection.

              We are buying it for a value that we have determined is profitable for resell, and for this reason we worry about the legal implications.

              He has delayed the bankruptcy filing in order to complete this deal with us, which would satisfy your above statement that it would be best to sell before filing.

              It's all so confusing, and to have to consult a professional attorney is far too expensive and cuts down on our profit margins. Hopefully, other members can give some more insight on this situation. Thanks again for your responses, it means a lot.

              Comment


                #8
                I see no problem with this sale.

                1. The debtor has advertised the product on the open market (craigslist);
                2. The agreed purchase price appears to be a wholesale price properly negotiated between the parties;
                3. There is no "relationship" between the parties but for the sale/purchase of the product;
                4. The debtor is filing a Chapter 13. A Chapter 13 Trustee is unlikely to "investigate" the validity of the transaction and even if he/she did, the question would be directed at the debtor. The debtor will show that the product was advertised for sale on the open market and that will end the inquiry.

                All you really need to do is keep your records of the transaction, which you should do regardless of the bk issue. This would include the Craigslist ad, any emails between you and the seller, a copy of the payment (cashier's check, personal check, direct transfer, paypal account etc - however you pay for it) and any other document that pertains to the deal.

                Des.

                Comment


                  #9
                  Thanks Des! We always keep records of our transactions, but if we peruse this deal then we will take extra care in doing so. The craigslist ad is long gone but we still have all of the emails. We will also draw up a small contract confirming all of the details of the deal.

                  Great forum, and we appreciate all of the advice.

                  -Sera & Anthony

                  Comment

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