[mc src=”http://www.thebklawyer.com/thebkblog/media/2008/06/22/i-went-to-a-chapter-7-bankruptcy-auction/Ch7auction.flv” width=”320″ type=”video”/] This past Saturday, June 21, 2008, I went to a bankruptcy auction of a Chapter 7 debtor’s property. The sale arose from the bankruptcy of a business promoter who filed bankruptcy after his project failed. I recorded a short video describing the type of property that was being auctioned, which is at the top of this post.
The business was a media company that was going to stream on-line videos to individuals – kind of a self-help program delivered by video. The promoter apparently solicited investments from dozens of people, but apparently the money ran out before subscription income could sustain the business.
Originally the promoter filed a Chapter 11, reorganization, but it was converted to Chapter 7 because there were insufficient income streams to reorganize.
This case was set up as an “asset case” as the debtor owned personal assets beyond what he could claim as exempt property that could be liquidated for the benefit of creditors. The trustee hired an auction company and the auction was scheduled for 9:00 am on June 21 at the debtor’s house.
I found out about this because a good friend of mine lives in the same neighborhood as the debtor and he had heard rumours about what might be inside. I decided to join him at the auction.
We arrived at the debtor’s house around 8:30 AM and there was a line of about 30 people in front of us. Some were from the neighborhood, but most were not. Cars were lining the streets in the subdivision, and security was present.
Right at 9am, the doors opened and people streamed in. The first thing I noticed upon entering was that all of the items for sale were tagged. This was not an auction in the traditional sense – basically the auctioneer had priced the various items and if you got there first, you could buy the item. I suspect that as the week goes on, the liquidator would be open to offers, but I wonder how much stuff will be left at that point.
While there was plenty of stuff left by the time I got in, there were people there who obviously knew what they wanted.
Because the proceeds of the auction go to the bankruptcy estate (to pay creditors and the Chapter 7 trustee), the liquidator was not giving anything away, but I suspect that there were some decent deals if you knew what you wanted. If I had to guess, I would say that most of the small items were going for 60 to 70 cents on the dollar.
The second thing I noticed – the debtor’s house was pretty much left as it was found when the trustee seized possession. There was food in the refrigerator, dirty clothes in the hamper, etc. It was a little creepy, to be honest.
I walked around for about 30 minutes, but did not buy anything. There were a couple of items that seemed like good deals, but nothing that was worth standing in a 30 minute line to pay.
I would like to stress that this type of situation – an auction of personal belongings at one’s house – is fairly unusual. Firstly, most Chapter 7 cases are “no-asset” cases, meaning that all of the debtor’s personal property is exempt. Secondly, this case involved an investment promotion failure (the Chapter 7 trustee refers to it as a Ponzi scheme in his pleadings), and the trustee in this case may have been trying to send a message.