What Happens at a Bankruptcy Liquidation Sale?

This past weekend, I had the opportunity to attend a bankruptcy liquidation sale. The case involved a business promoter in the Atlanta area who ended up in Chapter 7 when his business failed. This individual had apparently solicited hundreds of thousands of dollars from investors to create an on-line streaming video business.

As best I can tell from reviewing the pleadings and researching the business on the Internet, the goal of the business was to provide “self-help” videos and business development tools to subscribers.

The Chapter 7 trustee refers to this business as a “Ponzi scheme” in his pleadings. A Ponzi scheme, if you are not familiar the term, is a business scam in which the promoter solicits money from a group of investors promising a high rate of return, then he uses the money from a second set of investors to pay an initial return to the first set. The first set of investors may be tempted to invest more and word of the deal may spread - by the time the pyramid collapses, the promoter may end up with hundreds of thousands or millions of dollars.

It is unclear from the bankruptcy pleadings if this particular promoter will be charged with a crime. Regardless, the promoter/debtor ended up in bankruptcy and since most of his assets were non-exempt, the trustee declared the case as an “asset case” and proceded to liquidate those assets.

In this case, the debtor lived in an up-scale neighborhood and he had accumulated a lot of nice things - cars, electronics, sporting equipment, jewelry, collectibles, etc. The house itself was an asset that was being liquidated. After obtaining permission from the bankruptcy judge, the trustee hired an estate liquidation company and the liquidation itself was scheduled for 9am on June 21, 2008 at the debtor’s former residence. A friend of mine lives in this neighborhood, which is how I found out about the auction.

Apparently, there are a lot of people who track these types of sales because by around 8:30am, cars were linking the streets of this subdivision. At 9am sharp, the doors opened, and prospective buyers poured in. Interestingly, the sale was not conducted as an auction - instead, the liquidator had tagged all of the debtor’s property with prices. I suspect that later on in the liquidation process, there could be some negotiation but for those first few crazy minutes, it was first come first serve.

Within the first 30 to 45 minutes, the inventory of property was substantially reduced. Everything was for sale, including cookware, clothes, shoes, even food in the pantry. The debtor’s fishing equipment and tools seemed to be very popular. When I left, the two Mercedes vehicles had not yet been sold, nor had the Freightliner sport truck.

A list of the inventory was shown on the liquidator’s web site - that site will likely be taken down soon, so I created a screen capture video, which you can see on my Atlanta bankruptcy law blog.

Obviously, most Chapter 7 debtors don’t have new Mercedes cars and Rolex watches. Most Chapter 7 cases are “no asset” cases, meaning that there is nothing for the trustee to liquidate. I further suspect that if there are one or two items to liquidate, the sale will not be conducted at the debtor’s home. Still, it is interesting to see what happens in a true liquidation