ABI Commission on Consumer Bankruptcy – A Chapter 7 Trustee’s Sale of Encumbered Property

By Henry E. Hildebrand, III, Chapter 13 Standing Trustee (Nashville, TN)

The Commission heard from several individuals and attorneys that related tales of Chapter 7 trustees negotiating a “carve out” with a lienholder on the debtor’s real property when there was no equity available in the property. The way this works is that when property came into a Chapter 7 estate with an underwater first mortgage but also with a totally unsecured second mortgage, the trustee would approach the first mortgage holder and request the opportunity to sell the property if the first mortgage would agree to . . .

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