Inforuptcy Blog Categories: Buying assets 101

In Which District/Venue Should You Purchase the Asset?

Posted by Matthew Lein, Esq. on January 22, 2015

Guest Post By Matthew Lein, Esq.
Lein Law Offices

Investors must purchase assets from the district/venue where the bankruptcy case is filed.  If you purchase an asset of a bankruptcy estate, without further considerations, that asset must be purchased through the bankruptcy court where the case is pending.  In most individual or small business cases, the bankruptcy case will be filed in the district where the consumer(s) or business is located.  However, larger businesses (i.e. Enron Corp., Caesars Entertainment Corp.) may have additional choices in venue. 

Most cases must be filed in the federal district either: (1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the 180 days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or (2) in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership. 28 USC 1408(1)-(2).

The above statute applies to bankruptcy chapters 7 through 13.

Most non-large bankruptcies are filed in the district where the consumer(s) or business is physically located.  Those bankruptcies involve a consumer(s) or business that does not involve “[an] affiliate, general partner, or partnership” that reside outside the district.

Larger bankruptcies may involve “[an] affiliate, general partner, or partnership” that do reside outside the district where courts have looked to a variety of factors when determining if a venue is proper.  

No case is similar and almost no case fits perfectly in the statutory language outlined in 28 USC 1408(1)-(2).  Accordingly the court may rely on a number of factors outlined in previous bankruptcy cases to help it determine the correct venue.  The principal place of business and major business decisions are significant factors.  

Principal place of business
Principal place of business, for venue purposes, of corporate or other non-individual Chapter 11 debtors that, following suspension of their license to do business as professional medical corporations in California, had no further business activities, other than collection of unpaid accounts receivable, was the Northern District of Indiana where debtors' principal had relocated with all of debtors' business records, and which was also state in which debtors' tax returns were filed, though receiver appointed to administer assets of debtors for benefit of California judgment creditor was appointed by California court and was located in California; receiver had no authority to act on behalf of debtors, whose nerve center for any remaining management or operational decisions, such as they were, was state to which their principal had moved. In re West Coast Interventional Pain Med. Inc., 435 B.R. 569 (Bankr.N.D.Ind., 2010)

Venue of Chapter 11 bankruptcy case could be transferred from Middle District of Pennsylvania to the District of New Jersey, even though debtor's place of incorporation and its principal assets were in Pennsylvania, where “nerve center” or principal place of debtor's business was in New Jersey.  In re Deabel, Inc., 193 B.R. 739 (Bankr. E.D. Pa., 1996)

Partnerships and principal place of business
Venue for Chapter 11 case was properly in New York, though debtor partnership's sole asset was apartment complex in Arizona, in that principal place of partnership's business was in New York; though day to day decisions regarding management of property were made in Arizona, major business decisions for debtor were made in New York. In re Garden Manor Associates, LP, 19 B.C.D. 521, 99 BR 551 (Bankr. S.D.N.Y., 1988)



U.S. Bankruptcy Courts––Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the Three-Month Period Ending March 31, 2013, Based on Data Current as of March 31, 2013

In conclusion, in most instances that do not involve a large corporation, the asset will be purchased from the nearest bankruptcy court.  In instances that do involve a large corporation, the buyer must be prepared to purchase the asset from a non-local bankruptcy court.


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You May Also Be Interested In:
The 363 Bankruptcy Sale Procedure – Broken Down and Simplified
Property of the Estate Under 11 U.S.C. § 541
The Automatic Stay

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The Automatic Stay

Posted by Zev Shechtman, Esq. on January 7, 2015

Guest Post By Zev Shechtman, Esq.
Danning, Gill, Diamond & Kollitz, LLP

The threat of bankruptcy is ever present in the world of distressed property investing.  The filing of a bankruptcy petition triggers an automatic stay that stops actions by other parties against the debtor and the debtor’s property.  While this can result in delays of asset acquisitions and dispositions, it is not necessarily an insurmountable obstacle. In some cases it may even create opportunities for deals.

Statutory Background
The automatic stay codified in section 362(a) of the Bankruptcy Code prevents, “automatically” upon the filing of a bankruptcy petition, among other things:

(1) the commencement or continuation… of a judicial, administrative, or other action or proceeding against the debtor…;

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [bankruptcy] case…;

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; [and]

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title….

In other words, the automatic stay stops a wide range of actions against a debtor or the debtor’s property, including foreclosure, eviction and other collection and enforcement actions.

(1) What happens to a foreclosure if the property owner files for bankruptcy protection?

If a debtor files for bankruptcy before the debtor’s property is sold in foreclosure, the foreclosure sale is barred by the automatic stay.  If the sale goes through despite the bankruptcy filing, in the Ninth Circuit such sale is void.  However, if the debtor files for bankruptcy protection after the completion of the foreclosure, then the automatic stay generally does not affect the validity of the sale.

The automatic stay is not necessarily a permanent bar from proceeding with foreclosure.  A lien holder seeking to foreclose after the bankruptcy filing may file a motion seeking relief from the automatic stay under 11 U.S.C. § 362(d) seeking an order “terminating, annulling, modifying or conditioning” the stay.  To obtain such an order, the movant must generally show (1) “cause, including the lack of adequate protection”; or (2) that “the debtor does not have an equity in such property” and “such property is not necessary to an effective reorganization.”[1]  “Adequate protection” can be satisfied in various ways, including by an equity cushion in the collateral above the value of the lien.  

As an example, if a property is worth $500,000 and the lien against the property is for $700,000, the lien holder would likely argue under section 362(d)(2) that relief from the automatic stay should be granted because there is no equity in the property and that such an “underwater” property cannot be useful in any reorganization.  If the lien holder succeeds in obtaining an order granting relief from stay, then the lien holder can proceed with foreclosure under applicable nonbankruptcy law.

There is an exception to the automatic stay (among others) benefiting a lien holder who previously obtained an order for relief from stay on the basis that the bankruptcy filing was part of a scheme to hinder, delay or defraud creditors involving unauthorized transfers of the property or multiple bankruptcy filings.  If the lien holder previously obtained the order as to the same real property within two years before the new bankruptcy filing, such lien holder can proceed with foreclosure or other enforcement action without seeking relief from stay.  However, the debtor in the new bankruptcy case can ask for relief from the prior order based on changed circumstances or good cause shown.[2]  

(2) Can the automatic stay result in opportunities for asset purchasers?

It is important to remember that while the automatic stay stops a foreclosure of property, it does not prevent a chapter 7 trustee from selling the same property.  Indeed, if the chapter 7 trustee determines that a sale of property pursuant to 11 U.S.C. § 363 will benefit the estate, the bankruptcy filing allows for a sale by the trustee without resort to foreclosure.  A sale under section 363 can be advantageous to lien holders, who may prefer to avoid a lengthy foreclosure, and junior lien holders in particular who may receive full value from a bankruptcy sale.  A section 363 sale is also attractive to asset purchasers because it affords an opportunity to purchase property free and clear of liens and other interests.

Knowledgeable buyers of bankruptcy assets can create opportunities to realize value for lien holders and bankruptcy estates.  For example, a buyer scanning bankruptcy schedules for underwater properties may consider contacting a lien holder (typically a financial institution that is the beneficiary under a trust deed) with respect to an attractive property and inquiring whether such lien holder would consent to a short sale by the bankruptcy trustee.  Trustees typically do not sell assets that are over-encumbered, but if the lien holder is willing to allot a certain portion of the proceeds that are subject to its lien to the estate (or “carve out”) in an amount sufficient to benefit creditors, then a trustee may consider selling the property under section 363.  This could benefit the lien holder if it saves time and expense in the foreclosure process, and it could benefit the investor who may be able to acquire a valuable property.  

A relief from stay motion, which is intended to enable a lien holder to foreclose on a property, can also serve as an opportunity for potential purchasers.  The hopeful buyer can contact the lien holder, through the attorney who filed the motion, and inquire regarding the possibility of a short sale.  The lien holder may welcome the opportunity to shortcut the relief from stay and foreclosure processes and to see the property brought directly to a sale under section 363.  

(3) How does the automatic stay impact the efforts of an owner trying to obtain possession of property from a debtor who is a former owner or tenant?

If the debtor as lessee does not voluntarily vacate the leased property, the owner generally needs to obtain relief from the automatic stay before the owner can proceed with eviction proceedings.  As discussed above, relief from stay may be given for “cause”, which includes a debtor’s failure to pay rent.    

There are exceptions to the automatic stay, making it possible for the owner to proceed with efforts to obtain possession of the property pursuant to applicable nonbankruptcy law without first filing a motion for relief from stay.  These exceptions include:

  • Acts by a lessor to obtain possession of nonresidential real property where the lease has terminated by the expiration of the stated term of the lease before or after the filing of the bankruptcy petition;[3]

  • Eviction or unlawful detainer proceedings against a residential tenant under a lease or rental agreement where the lessor obtained a judgment for possession of the property against the debtor before the bankruptcy filing,[4]  but subject to specific provisions allowing for the cure of monetary defaults by the debtor;[5] and

  • Evictions seeking possession of residential real property based on “endangerment” of the property or use of illegal controlled substances on such property.[6]

The automatic stay is a broad protection for debtors affecting a wide range of assets in different ways under different scenarios.  It can be a formidable obstacle, but can sometimes create deal opportunities.  

A party subject to the automatic stay should evaluate whether the filing of a motion for relief from stay is appropriate or whether an exception to the automatic stay applies in any given circumstance.  Even where an exception to the automatic stay may apply, a party may choose in certain situations to file a motion for relief from stay to avoid a potential argument by the debtor or trustee that the party has knowingly violated the automatic stay.[7]


[1] Additional bases for relief from stay exist in “single asset real estate” cases, 11 U.S.C. § 362(d)(3), and cases filed as part of a scheme to hinder delay and defraud creditors involving unauthorized real property transfers or multiple bankruptcy filings.  11 U.S.C. § 362(d)(4).

[2] 11 U.S.C. § 362(b)(20).

[3] 11 U.S.C. § 362(b)(10).

[4]  11 U.S.C. § 362(b)(22).

[5] 11 U.S.C. § 362(l).

[6] 11 U.S.C. § 362(b)(23).

[7] 11 U.S.C. §§ 362(k), 105(a).


To use the only search tool to find relief from stays across the country, you can sign up to our Rainmaker plan for $199 / month (cancel any time).

If you are a real estate investor interested in short sale leads from dismissed chapter 13 cases, you can sign up to our new reports plan for $49 / month (cancel any time).

If you prefer, you can also schedule a 15 minute web demo so you can see for yourself how to get started.

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You May Also Be Interested In:
The 363 Bankruptcy Sale Procedure – Broken Down and Simplified
Property of the Estate Under 11 U.S.C. § 541

P.S. If you are a trustee, please download our brochure to learn how to find stalking horse bidders for free.

Property of the Estate Under 11 U.S.C. § 541

Posted by Zev Shechtman, Esq. on December 16, 2014

Guest Post By Zev Shechtman, Esq.
Danning, Gill, Diamond & Kollitz, LLP

Sophisticated investors may look to bankruptcy for deals in distressed assets.  By definition, such buyers are trying to buy “property of the estate” from chapter 7 or 11 trustees or chapter 11 debtors in possession.  An investor with knowledge of the scope of property of the estate under the Bankruptcy Code, and who understands the schedules which list estate assets and liabilities, can better evaluate where there may be opportunities to realize value while avoiding bankruptcy’s pitfalls.  

The Bankruptcy Code (title 11 of the United States Code) defines what is and what is not property of the estate.  Pursuant to Section 541 of the Bankruptcy Code, property of the estate includes a broad range of tangible and intangible assets, including “all legal or equitable interests” of the debtor in property as of the commencement of the bankruptcy case.[1]

Property of the estate also includes, among other assets: community property interests of the debtor’s spouse; property recovered by a trustee or debtor in possession; certain property the debtor becomes entitled to within 180 days after the petition filing, such as property acquired by inheritance; proceeds and profits (unless for personal services); and other property acquired by the estate after the petition date.[2]  While the Bankruptcy Code defines property of the estate, it is state law that generally dictates what substantive rights the estate has in property.[3]   

Property of the estate, which the debtor must list on the debtor’s schedules (filed with or shortly after the petition), may include interests in real property, which are listed on the debtor’s Schedule A.  Property of the estate may also include all manner of personal property, listed on Schedule B, such as: automobiles, equipment, furniture and inventory, cash, bank accounts, stocks, bonds, loans receivable, accounts receivable, licenses, insurance policies and intellectual property.  

Other intangible assets may include corporate goodwill as well as contingent assets, including tax refunds, rights to royalties, or the recovery on a lawsuit.  Virtually every fathomable type and manner of interest which the debtor has when the debtor files for bankruptcy is in all likelihood property of the estate.[4]

A debtor’s assets, as reflected on Schedules A and B, may be of substantial value, but the analysis cannot be complete without reviewing Schedule D, and Schedule C if the debtor is an individual.  Schedule D lists all secured claims against the debtor’s property, which may equal or exceed the value of the property, thereby limiting or eliminating value.  Schedule C  lists exemptions available to individuals, which, when proper, allocate some or all of the equity in certain property to the debtor, thereby reducing the equity available to the estate.

It is the duty of a chapter 7 trustee to liquidate the property of the estate “as expeditiously as is compatible with the best interests of parties in interest.”[5]  In other words, when economically feasible, chapter 7 trustees will sell estates’ assets.  Chapter 11 trustees and chapter 11 debtors in possession are also generally required to utilize estates’ assets in a manner that is beneficial to creditors.  While that does not necessarily require a sale of assets, sales of chapter 11 debtors’ assets, in whole or in part, are common.  

It is not unusual for an entire company or substantially all of its assets to be sold.  An order of the bankruptcy court defining the buyer’s rights and fixing liabilities of the company going forward can be of great value to a buyer.  While avoiding successor liability is not always possible outside of bankruptcy,[6] a bankruptcy court order can often eliminate successor liability.[7]   

Disputes often arise in bankruptcy cases regarding whether or not property is property of the estate such that the trustee can sell such assets free and clear of any party’s interest.  A common issue arises when a married couple in a community property state takes title to property as joint tenants rather than as community property, and even though the source of purchase money was community funds.[8]  In such a scenario, if a debtor wife files for chapter 7 protection, she is likely to claim that only her half of the property is property of the estate, while the other half is asserted as the husband’s separate property.  This will impact the economic feasibility of a sale, even if the characterization of the property as joint tenancy is subject to attack, because litigation is expensive.

A debtor may also claim property as exempt from property of the estate.  The Bankruptcy Code allows each state to decide whether the federal scheme of exemptions applies, or the state’s own exemption scheme.  California’s exemption statutes, for example, currently provide for a homestead exemption of between $75,000 and $175,000 in real property.[9]  Generally (but there are exceptions), if the equity in the real property does not exceed the homestead exemption, a trustee will not attempt to sell it.  One commonly litigated issue with respect to homestead exemptions is whether the real property should be characterized as the debtor’s “homestead”—e.g., whether the debtor resided in the property at the time of the bankruptcy filing.[10]

Certain assets are less obvious than an interest in real property.  For example, assume that prior to filing for bankruptcy a corporate debtor has a financial dispute with another party in a joint venture arising from that party’s breach of contract or misappropriation of funds.  That claim, whether or not a lawsuit was filed before bankruptcy, is property of the estate.  As such, only the trustee or debtor in possession may pursue such a claim.  The trustee or debtor in possession may choose to sue the other party or may settle with that party for money which will be used to pay creditors.  Alternatively, the trustee may sell the asset.[11]  In another case, an individual debtor might have been injured in an accident before filing for bankruptcy, but had not yet filed a personal injury lawsuit at the time of the bankruptcy filing.  The contingent right to recover damages for such injury is property of the estate, and therefore may be pursued or sold by a trustee or debtor in possession.[12]  

A debtor cannot exclude such contingent assets from a bankruptcy case by, for example, failing to schedule such assets in the bankruptcy schedules.  In such event, a trustee will re-open the case, even years after the fact, to administer the asset and use its proceeds to pay creditors—worse yet, if the debtor is an individual, the debtor can lose his or her right to a discharge for failing to list the asset.  Even if the trustee does not reopen a case to administer unscheduled assets (such as legal claims), the failure of the debtor (individual or corporate) to list such assets can result in a waiver of the claims, meaning that the debtor cannot assert that the claims even exist.

There are certain provisions of the Bankruptcy Code dealing with a debtor’s interest in trusts.  A debtor may be the beneficiary of a trust, in which case such trust is generally property of the estate.  However, a trust with valid restrictions on the use of the proceeds, such as a spendthrift trust, may be inaccessible (in whole or in part) to the estate.[13]  A debtor may also be a trustee for the benefit of others, such as an ERISA trust, in which case the estate may have no beneficial interest in the asset.[14]  

The bankruptcy courts are constantly adjudicating what is and what is not property of the estate.  Many thousands of federal court decisions from the bankruptcy court level all the way up to the Supreme Court of the United States (and quite a few state courts) have analyzed the issue.  Above is just a brief sketch of some of the issues that commonly arise.  Just as there are innumerable types of property, and relationships between parties relating to property, issues relating to property of the estate continue to arise in interesting variations.  The informed buyer must remain aware of the possibilities, and problems, so as to be better prepared for opportunities to realize value.  


[1] 11 U.S.C. § 541(a)(1).

[2] 11 U.S.C. § 541(a)(2)-(7).

[3] Butner v. United States, 440 U.S. 48 (1979).

[4] In addition to Schedules A, B, C and D discussed herein, there are also Schedules: E and F (priority and nonpriority unsecured claims); G (executory contracts); H (codebtors); I (income of individual); and J (expenses of individual).  All debtors must also file a Statement of Financial Affairs providing required information regarding, among other things, transfers from the debtor, historical income, business interests, former addresses, among various other questions.  

[5] 11 U.S.C. § 704(a)(1).

[6] See, e.g., Ray v. Alad Corp., 19 Cal. 3d 22 (1977) (tort liability); Teed v. Thomas & Betts Power Solutions, L.L.C., 711 F.3d 763, 764 (7th Cir. 2013) (federal employment law liability).

[7] See, e.g.,  Myers v. United States, 297 B.R. 774, 786 (S.D. Cal. 2003) (finding no successor liability for buyer of assets “free and clear” of claims pursuant to 11 U.S.C. § 363).

[8] This discussion is limited to only a few topics, but there are many other interesting issues that affect property of the estate.

[9] Cal. Code. Civ. Proc. § 704.730.  California offers two sets of exemptions which may be elected by the debtor.  Debtors who own real property with equity typically elect to use the “704 series” of exemptions.

[10] For example, a debtor’s vacation home typically would not be subject to a homestead exemption.

[11] It may be appropriate, in some circumstances, to treat a compromise as a sale, or a sale as a compromise.  

[12] There may be an exemption for such a personal injury claim.  Cal. Code Civ. Proc. § 704.140.  Whether or not the claim is exempt is something that a trustee will evaluate before deciding to pursue or sell the claim.  

[13] 11 U.S.C. § 541(c)(2).

[14] 11 U.S.C. § 541(d).


To search and hunt for all asset sales across the country, you can sign up for $99 / month (cancel any time).

If you prefer, you can also schedule a 15 minute web demo so you can see for yourself how to get started.

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You May Also Be Interested In:
The 363 Bankruptcy Sale Procedure – Broken Down and Simplified

P.S. If you are a trustee, please download our brochure to learn how to find stalking horse bidders for free.

The 363 Bankruptcy Sale Procedure – Broken Down and Simplified

Posted by Yosina M. Lissebeck, Esq. on December 2, 2014

Guest Post By Yosina M. Lissebeck, Esq.
Lissebeck Law

Bankruptcy Code § 363 authorizes a debtor-in-possession or Trustee, to sell property of the estate other than in the ordinary course of business. A proposed sale of estate property will be approved if it is in the best interests of the estate, based on the facts and history of the case.[1] Before the Court can approve such a proposed sale, the Court must find that there is a valid business justification for the sale.[2] In addition to a sufficient business reason for the sale, the Court must find (1) the sale is in the best interest of the estate; (2) is fair and reasonable; (3) the assets to be sold were adequately marketed; and (4) was negotiated in good faith; and (5) that the buyer is proceeding in good faith; and (6) the sale is an “arms-length” transaction.[3] Lastly, the Court must find that the debtor-in-possession gave adequate and reasonable notice of the sale.[4]

In most circumstances, the DIP/Trustee will sell any and all assets of the estate that have equity available to pay creditors. Equity is determined by looking at the value of the asset, deducting any claim of exemption the debtor may have, and usually deducting something for the costs of the sale. The DIP/Trustee will then market the property to be sold. If the property is real property or IP, the bankruptcy estate may hire a broker to assist with the sale. If the property is personal property, the DIP/Trustee may reach out to parties he knows are interested in purchasing those types of assets, or may list it on various websites – including Inforuptcy. If you are interested in purchasing an asset, it is always best to reach out to the DIP/Trustee and find out what the Estate’s intent is in selling it. 

There are various types of sales that can take place, but the two most typical are a private sale, and a sale subject to overbid. A private sale is a sale between just the Estate and the purchaser. A sale subject to overbid is a sale between the Estate and the purchaser; but a third party can come into the process and state that it is willing to purchase the asset for more than the sale price, and then there will be bidding between the parties, like at an auction. Once an offer is obtained, the DIP/Trustee will negotiate and ensure that the relevant information, type of sale, and language is in the purchase agreement or sale documents. All agreements are subject to Bankruptcy Court approval.

Thus, once the parties agree to the terms, the DIP/Trustee will file a motion, with supporting documents including the agreement itself, obtain a hearing date, and serve these documents on all creditors and parties in interest. It usually takes 30 days from the date the motion is filed, before the matter is heard by the Court. If no party objects to the sale, and the Court determines that the factors above have been satisfied, it will approve the sale. An Order will be submitted by the DIP/Trustee and entered by the Court, usually within the week. The Order is deemed final 14 days after entry. If there was an escrow, it can close; otherwise any and all appropriate transfer documents can be exchanged. 

Now of course, as the title of this blog states: this is “broken down and simplified.” That means there may be factual circumstances, local bankruptcy court preferences, and procedural requirements that may differ. Thus, it is always best to contact a bankruptcy practitioner to answer any questions or assist you with the sale process.


[1] In re American West Airlines, 166 B.R. 908, 912 (Bankr. D. Ariz. 1994), citing In re Lionel Corp., 722 F.2d 1063, 1071 (2nd Cir. 1983).

[2] See, e.g., In re 240 North Brand Partners, Ltd., 200 B.R. 653, 659 (9th Cir. BAP 1996).

[3] In re Wilde Horse Enterprises, Inc., 136 B.R. 830, 842 (Bankr. C.D. Cal. 1991).

[4] Ibid.

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