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What’s a “custodian” in bankruptcy? One of a series

Posted on Jan 17, 2010 in Uncategorized

One of the biggest benefits of a bankruptcy case is that the debtor can get a discharge of most, if not all, of his debts. Another benefit which is often overlooked is the right to get property back which someone else may have taken away. 

In order to better understand that, you want to know what the Bankruptcy Code means by the term “custodian”.

Under the Bankruptcy Code, a “custodian” means:

  •  receiver or trustee of any of the property of the debtor, not in bankruptcy
  • assignee under a general assignment for the benefit of the debtor’s creditors; or
  •  anyone who to takes charge of property of the debtor to enforce a lien against such property, to sell it for benefit of the debtor’s creditors.

Why is this important to you?  Well, it can be vital if somebody repossessed your car just before you filed a bankruptcy case.  This happens pretty often.  The Seventh Circuit Court of Appeals, covering Illinois, Wisconsin and Indiana recently decided in Thompson v. GMAC that a creditor who repossessed a debtor’s car prior to a bankruptcy case but had not yet sold it was a “custodian” .  This was vital to the debtor because under the Bankruptcy Code, a “custodian” must give back to the debtor, or the trustee as the case might be, any property which it may have in its possession on the day the case is filed. 

If you’re thinking about filing a chapter 13 case or keeping your car in a reaffirmation agreement, you can claim that the creditor was acting like a custodian when it took back your car before your bankruptcy.  Make your lawyer get it back.

Lakelaw helps people keep their cars in bankruptcy in Illinois and Wisconsin.


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