A. Asserting Proprietary Claims against the Trustee

Author:Roderick J. Wood
Profession:Faculty of Law. University of Alberta

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This chapter is the flip side of the previous chapter. Upon bankruptcy, the assets of the bankrupt vest in the trustee. However, the occurrence of bankruptcy does not permit the trustee to confiscate assets belonging to persons other than the bankrupt. A third party who successfully claims an interest in an asset is permitted to withdraw it from the bankrupt’s estate. Where the claimant establishes absolute ownership in the property, the asset is entirely removed from the bankrupt’s estate. The third party’s proprietary right in the asset may be of a more limited nature such that the asset or its value is not completely removed from the estate. For example, a person who owns land jointly with the bankrupt does not have the right to take the land entirely out of the bankrupt’s estate. Bankruptcy severs the joint tenancy and converts it into a tenancy in common. The trustee may bring proceedings for partition and sale of the interest, or may sell the bankrupt’s interest to a purchaser who will enjoy a similar ability to do so.1An astonishing variety of property interests can be created. Many arise through consensual dealings, but they can also arise through the operation of law in response to other events such as wrongdoing or unjust enrichment.2It is beyond the scope of this work to catalogue all the different kinds of property rights. This chapter will limit itself to a consideration of the bankruptcy procedure that is used to determine the legitimacy of the third party’s claim to the property and to an examina-

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tion of some of the proprietary claims that are commonly asserted by third parties in the context of bankruptcy proceedings.

The BIA provides a procedural mechanism for the resolution of proprietary claims made by third parties in respect of assets that are under the control of the trustee. The procedure is a complete code and it is not open for a claimant to pursue an alternative avenue to have the claim recognized.3Although the procedure is of general application, claims of secured creditors and sellers claiming thirty-day goods are resolved through a different procedure.4

A person who claims a proprietary right in an asset in the possession of the trustee must file a proof of claim verified by an affidavit that sets out the basis for the claim and sufficient particulars to enable the property to be identified.5The trustee must either admit the claim and deliver possession of the property to the claimant or...

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