Debtor’s Machine Gun in Chapter 7 Bankruptcy

A Chapter 7 bankruptcy trustee is supposed to gather and sell all non-exempt personal property of significant value. Sometimes there are practical considerations that lead most trustees to leave valuable assets for the debtor.

One of my Chapter 7 bankruptcy clients owned a military-grade machine gun. The stated that the machine gun was worth at least $8,000. The machine gun would be non-exempt in this debtor’s bankruptcy.

The client stated that someone needed a federal permit to own the gun, and that the permit is non-transferable. A subsequent buyer would have to in advance apply for a federal permit to own this particular gun, and any person who possessed the machine gun without the proper permit would be in violation of federal laws with substantial penalties.

I think most bankruptcy trustees would not seek turnover of the machine gun despite its value. The trustee would be personally liable for accidents and federal law violations once he received the gun. Moreover, the market for the machine gun is very limited due to the permit requirements, and therefore, the trustee would have difficulty turning the machine gun into cash for the creditors.

This is an example of an unusual circumstance where a debtor may retain a valuable asset through a Chapter 7 case.

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