Trustee as Hypothetical Bona Fide Purchaser
By Nicholas Ortiz, Boston Bankruptcy Attorney on Jun 22, 2007 in Bankruptcy Cases of Interest, Protecting Assets In Bankruptcy
The First Circuit Bankruptcy Appellate Panel recently decided In re Garrido Jimenez, 2007 WL 1748554 (1st Cir.BAP 2007), a relatively straightforward case in which a debtor transfered real estate to his daughter for no consideration and then filed a Chapter 7 bankruptcy case. The trustee sought to reverse the transfer on several grounds. The trustee’s fraudulent conveyance grounds may have been sufficient. However, they were not needed because the debtor’s daughter had not recorded the deed of conveyance until three months after the bankruptcy case was filed. This allowed the trustee to invoke 11 U.S.C. 544(a)(3) which creates a peculiar fiction. This subsection states that the trustee is, at the commencement of a bankruptcy case: “a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.” This does not affect the debtor’s ability to protect and keep exempt property, but rather puts the trustee ahead of transferees of the debtor’s property with interests that are unperfected under applicable state law before the commencement of a bankruptcy case.
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