What a Chapter 7 trustee looks for in the record

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The same material, read aloud and told more loosely than it is written. Nothing is said in it that this page does not also say.

Schedules against the record

An estate that is wide, a debtor's account of it on file, and a land record that dates and names everything the debtor touched. What a trustee does is read one against the other.

An estate that takes in everything. Commencing a case creates an estate of all the debtor's legal or equitable interests in property as of that moment, wherever located and by whomever held, subject to the exceptions the section carves out. 11 U.S.C. 541¹ (a)(1). And it keeps reaching forward: an interest the debtor becomes entitled to within 180 days after filing, by the means the subsection lists, comes in too. 11 U.S.C. 541 (a)(5).

A debtor's own account sits on file. Unless the court orders otherwise, the debtor files a schedule of assets and liabilities, a schedule of current income and expenditures, and a statement of financial affairs. 11 U.S.C. 521² (a)(1)(B). What those papers must list down to the line is a question these sections do not answer, and this page will not guess at it. Any creditor who files a request can have them, where the debtor is an individual in Chapter 7. 11 U.S.C. 521 (e)(1).

Those papers want checking against something. Florida's clerk records deeds, mortgages, liens, levies and their releases in one series called Official Records, with a register entering each instrument's number, its filing date and hour, its kind and its parties, plus a direct and inverse index of names. Fla. Stat. 28.222³ (2). New York's recording officer keeps grantor and grantee indexes for mortgages and for conveyances, RPL 316⁴. That officer also enters the hour, day, month and year each instrument was recorded. RPL 319⁵. Every deed and lien carries a date and two names, which is exactly what a schedule can be measured against.

Looking is the trustee's job. Investigating the debtor's financial affairs, collecting and reducing the estate to money, and accounting for all property received are duties the Chapter 7 trustee carries. 11 U.S.C. 704⁶ (a). The debtor has to cooperate and surrender estate property along with the recorded information relating to it. 11 U.S.C. 521 (a)(3), (a)(4). Knowingly and fraudulently making a false oath in the case, or withholding recorded information about the debtor's property from an officer of the estate entitled to possession, is a ground to deny the discharge. 11 U.S.C. 727⁷ (a)(4). So is concealing or failing to keep records from which the debtor's financial condition could be ascertained, unless justified. And so is failing to explain a loss or deficiency of assets. 11 U.S.C. 727 (a)(3), (a)(5). Opposing the discharge, if advisable, is itself one of the trustee's duties. 11 U.S.C. 704 (a)(6).

Transfers in reach

A transfer the debtor left off the schedules is still in the record, and several statutes give the trustee a window to reach back for it. Those windows differ, and the one that runs longest is the one most people forget.

From the first moment the trustee stands in strong shoes. As of the commencement of the case, and without regard to anyone's knowledge, the trustee holds the rights of a creditor with a judicial lien on everything and of a bona fide purchaser of the debtor's real property who perfected at that instant. 11 U.S.C. 544⁸ (a). That matters because an unrecorded conveyance is not good against creditors or later purchasers for value without notice in Florida, Fla. Stat. 695.01⁹ (1), and is void against a later good-faith purchaser who records first in New York. RPL 291¹⁰. For the fraudulent transfer rule a transfer is made when it is perfected against a bona fide purchaser, which for land is a recording question, and an unperfected transfer counts as made just before the petition. 11 U.S.C. 548¹¹ (d)(1). An unrecorded deed, in other words, is a deed with no priority date and a trustee waiting for it.

Two years is the federal avoidance window. The trustee may avoid a transfer made within 2 years before the petition with actual intent to hinder, delay or defraud creditors, or for less than reasonably equivalent value while insolvent or in the other conditions the section lists. 11 U.S.C. 548 (a)(1). A transfer to a self-settled trust the debtor is a beneficiary of, made with that same intent, is reachable for 10 years. 11 U.S.C. 548 (e). Preferences reach transfers to ordinary creditors within 90 days, and to insiders between 90 days and one year. 11 U.S.C. 547¹² (b)(4)(A), (B).

State law stretches the reach further. The trustee may avoid any transfer an unsecured creditor could avoid under applicable state law, which borrows that state's look-back. 11 U.S.C. 544 (b)(1). In both Florida and New York an actual-intent claim runs 4 years after the transfer or, if later, 1 year after it was or could reasonably have been discovered. Fla. Stat. 726.110¹³ (1); DCL 278¹⁴ (a). The constructive claim runs 4 years with no discovery clause, Fla. Stat. 726.110 (2) and DCL 278 (b), and the insider preference runs 1 year. Fla. Stat. 726.110 (3); DCL 278 (c). Set out side by side in the look-back windows for voidable transfers. State law also tells a court what to weigh on intent: among the factors it may consider are a transfer to an insider and the debtor keeping possession or control after it. Fla. Stat. 726.105¹⁵ (2); DCL 273¹⁶ (b). Those badges you can read off the record are the second half of the comparison.

After filing, the picture tightens. The trustee may avoid unauthorized transfers of estate property, 11 U.S.C. 549¹⁷ (a), but not a transfer of real property to a good-faith purchaser for present fair equivalent value without knowledge of the case, unless a copy or notice of the petition was filed in the land records before the transfer was perfected against a bona fide purchaser. 11 U.S.C. 549 (c). Florida's clerk records certified copies of bankruptcy petitions, with the schedules omitted, when they are presented. Fla. Stat. 28.222 (3)(f). Transferring or concealing the debtor's property within a year before filing, with intent to hinder, delay or defraud, is also a ground to deny the discharge. 11 U.S.C. 727 (a)(2).

These clocks are not generous. An action under section 544, 545, 547, 548 or 553 must come by the later of 2 years after the order for relief or 1 year after the first trustee's appointment, if that appointment occurs before the 2-year period expires, and in any event before the case closes. 11 U.S.C. 546¹⁸ (a). The postpetition-transfer action under section 549 must come within 2 years of the transfer and before the case closes. 11 U.S.C. 549 (d).

Turnover and recovery

Finding the asset is half of it. The Code then lets a Chapter 7 trustee tell whoever holds the asset to hand it over or whoever owes for it to pay. It also sets how far down a chain of transfers the recovery can go.

Whoever holds estate property delivers it. An entity holding property the trustee may use, sell or lease, or the debtor may exempt, must deliver it or its value and account for it, unless it is of inconsequential value to the estate. 11 U.S.C. 542¹⁹ (a). An entity owing the debtor a matured or on-demand debt that is estate property must pay it to the trustee, except to the extent it may be offset. 11 U.S.C. 542 (b). After notice and a hearing the court may order an attorney, accountant or other person holding records about the debtor's property or financial affairs to turn them over, subject to privilege. 11 U.S.C. 542 (e). The accountant's file is not beyond reach.

Recovery follows the property, once. Where a transfer is avoided the trustee may recover the property or its value from the initial transferee, the entity it benefited, or a later transferee, 11 U.S.C. 550²⁰ (a), but only a single satisfaction, 11 U.S.C. 550 (d), and not from a later transferee who took for value in good faith without knowing of the voidability. 11 U.S.C. 550 (b). What the trustee recovers becomes estate property. 11 U.S.C. 541 (a)(3). The recovery action must be brought within 1 year after the avoidance and before the case closes. 11 U.S.C. 550 (f).

That duty runs the other way too. Unless the court orders otherwise, a Chapter 7 trustee must furnish information about the estate and its administration that a party in interest requests. 11 U.S.C. 704 (a)(7). It is the counterweight to every power above: the office that investigates is also the office that has to answer.

What this does not cover

What the statutes here provide, and nothing past them.

Two states carry the land record here, Florida and New York, under the federal Bankruptcy Code. No other state's recording act or voidable-transfer clock is set out here, and section 544(b) borrows whichever state's law applies. What the debtor must itemize on the schedules, as against what the trustee finds in the record, is the one question this page has stepped around, because the sections that require the schedules do not describe what goes on them.

Nobody writing this is a lawyer and none of it is advice. Whether a particular transfer can be avoided, whether a discharge should be opposed, or whether a given asset belongs to the estate are questions for counsel with the file open. What a page can do is narrower. It can tell you that every deed and lien in the record carries a date and two names, that the schedules carry the debtor's own account of the same years, and that most of what a trustee finds is the distance between the two.