Nitin Singh, one of your firm's bankruptcy clients, owns a small parcel of land that is listed on his bankruptcy petition. His neighbor has approached him and offered a good price for the property. Nitin calls and wants to know whether his bankruptcy attorney can also represent him in the sale of the property. What advice do you think your supervising attorney will give Nitin?

Question

What will be an ideal response?

Answer 1

After the debtor files for bankruptcy, any real property the debtor owns is now part of the bankruptcy estate and under the control of the trustee. A debtor does not have the authority to sell or refinance any real property without the approval of the bankruptcy court.

Problems often arise when real estate law and bankruptcy intersect because the debtor usually obtains a discharge of debts before the trustee has had the opportunity to evaluate the property. A debtor may not understand that the bankruptcy case has not terminated until it has been closed. In this interim period, the debtor may mistakenly transfer the property through a sale because market conditions and rates have improved or an interested buyer has emerged. If a transfer or refinancing does take place, the trustee has the authority to undo the sale. This creates problems for the debtor and the new buyer. Therefore, it is vital for the debtor to wait until the bankruptcy case is officially closed or seek the court's permission before going forward with the sale. The closing of the case will signal to the debtor that any asset that was not administered during the course of the bankruptcy proceedings is now deemed abandoned and the debtor is free to sell the property.