Claims vested in a trustee in bankruptcy

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On a bankruptcy order or assignment, a bankrupt’s property immediately vests in the bankrupt’s trustee. This property includes “things in action” such as a claim the bankrupt may have to the property of another, although certain claims that are personal in nature do not vest in the trustee. When a claim has vested in a trustee, the bankrupt has no legal capacity to pursue the claim.

In Kirschner v. Moore, 2022 BCSC 1226, a respondent in a family law proceeding sought to dismiss a property claim of the claimant on the basis that the claimant was an undischarged bankrupt at the time the proceeding was commenced. The claimant’s discharge had been set aside, and her trustee reappointed, as a result of her failure to disclose the property claim to the trustee. The Court found that the property claim had vested in the trustee such that the claimant lacked legal capacity to commence the claim.

Despite the lack of capacity, the Court did not dismiss the claimant’s property claim, noting that courts are reluctant to dismiss claims on purely technical grounds and that the claim could be “regularized” with a retroactive order. The claimant’s own application to add the trustee in bankruptcy as a party in order to regularize the claim was unsuccessful as there was insufficient evidence to demonstrate that the trustee was prepared to be added as a party to the proceeding with conduct of the litigation. The Court did, however, provide the trustee with 60 days to apply to be added as a party to the proceeding, failing which the property claim would be dismissed.

Key Takeaways

Kirschner illustrates the importance of a bankrupt disclosing claim to a trustee, to avoid the risk of a discharge later being set aside. Moreover, a bankrupt should, even after discharge, ensure the bankrupt has capacity to make a claim. If a claim has vested in a trustee, a bankrupt will be unable to pursue a claim without a valid reassignment of the claim to the bankrupt upon discharge.

Bankruptcy and Insolvency Vancouver Lawyers

Are you or your clients facing claims against bankruptcy?  The lawyers at Gehlen Dabbs Cash LLP are highly experienced and happy to assist. Contact us.

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