Steps a trustee can take to protect a bankrupt estate from fraud

On Behalf of | Dec 31, 2014 | Chapter 11 |

If you are a bankruptcy trustee, then you have a fiduciary duty to creditors and debtors. That being the case, a mistake at any point in the process could expose you and the bankruptcy estate to liability. Because bankruptcy law and procedure are very complex, it is important for bankruptcy trustees to have legal guidance to ensure that all duties and obligations are met.

Sometimes, to carry out their fiduciary duties, bankruptcy trustees must take steps to hold creditors or debtors responsible for fraud. If a trustee suspects fraudulent actions on the part of anyone involved in a bankruptcy case, then there are certain legal actions that can at once protect the trustee from liability and hold the responsible party accountable.

Initially, there may not be enough evidence of fraud to take the matter to court, but federal bankruptcy law gives fairly broad discretion to trustees. If you are the trustee of a bankrupt estate, then you can request and examine documentation and testimony from virtually anyone you suspect of fraud. In short, since you bear the fiduciary duty, you have a right and responsibility to ensure that everyone is playing by the rules.

After you have gathered sufficient evidence of fraud, you can sue the responsible party in bankruptcy court. These proceedings tend to move more quickly than other kinds of lawsuits, but it may be necessary to get a temporary injunction if fraudulent activity poses a continued threat to the estate.

Wrongful seizure of property by creditors, wrongful taking of property by company officers, hidden assets and fraudulent transfers are some common types of bankruptcy fraud.

The attorneys at Shulman Bastian Friedman & Bui LLP represent trustees in California and throughout the United States in all matters of bankruptcy. To learn more about our firm, please visit our business law website.

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