A BONA FIDE DISPUTE: CAN BANKRUPT DEBTORS SELL ASSETS FREE AND CLEAR OF FEDERAL CIVIL FORFEITURE CLAIMS?

Auctions are wheeling-dealing extravaganzas in which frenzies of bidders fight over shiny objects. What would happen if the government busted down the doors of the auction house, took the shiny objects, and sold them online? An asset sale through section 363(b) of the Bankruptcy Code provides a cour...

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Bibliographic Details
Published inFordham journal of corporate & financial law Vol. 29; no. 2; pp. 587 - 634
Main Author Gomez, Joseph Peter
Format Journal Article
LanguageEnglish
Published New York Fordham Journal of Corporate & Financial Law 01.04.2024
Subjects
Bankruptcy laws
Bankruptcy reorganization
Cocaine
Confiscation
Criminal liability
Drug trafficking
Federal government
Power
Sales
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Summary:Auctions are wheeling-dealing extravaganzas in which frenzies of bidders fight over shiny objects. What would happen if the government busted down the doors of the auction house, took the shiny objects, and sold them online? An asset sale through section 363(b) of the Bankruptcy Code provides a court-supervised opportunity to maximize economic value for the bankruptcy estate. To sell estate assets, the debtor must either (1) pay off each creditor holding an interest in the assets or (2) strip the creditor's interest and attach it to the proceeds of the sale. When the government asserts a civil forfeiture claim against the asset being sold, it argues that its claim has superpriority over every other interest. If the debtor chooses option one, the government might demand the debtor pay up, or else it will seize the assets, leaving the debtor and its creditors with nothing. A debtor, naturally, might wish to choose option two: strip the government's forfeiture interest from the asset and attach it to the sale proceeds. This Note examines the unique aspects of civil forfeiture claims and how those aspects conflict with asset sales through section 363(b). It identifies case law across jurisdictions to assist courts asked to determine whether to strip a civil forfeiture claim from assets sold through section 363(b). It proposes a three-step framework for courts to apply in analyzing this issue. Finally, this Note argues that bankruptcy courts should allow sales of assets free and clear of a federal civil-forfeiture interest if the interest is in bona fide dispute and the government's interest can be adequately protected by attaching it to the sale proceeds.
ISSN:1532-303X