III. LIQUIDATION BY THE TRUSTEE
If the Chapter 7 trustee determines that encumbered property is worth more than the amount of any liens plus costs of administering such property, the trustee will liquidate the property and may transfer any liens against the property to the proceeds of sale.
A. Provisions for Selling Property of the Estate
After notice and hearing, the trustee may sell property of the estate (other than in the ordinary course of business). 11 U.S.C § 363(b). Such a sale may be free and clear of any interest in the property (e.g., liens) if:
(a) Applicable non-bankruptcy law permits sale of the property free and clear of the encumbrances,
(b) The lien holder consents,
(c) Such interest is a lien and the property is to be sold at a price greater than an aggregate value of all liens on the subject property,
(d) The interest is in bona fide dispute, or
(e) The lien holder could be compelled in a legal or equitable proceeding to accept a money satisfaction of the interest.
11 U.S.C. § 363(f). If the sale is authorized, the proceeds will be subject to the interest of the lienholder. These provisions allow the trustee to quickly monetize real assets at maximum value, thereby reducing the burden and risk on the estate while also protecting lien holders' interests. If there is dispute over the validity or amount of a lien, the lien may be transferred to the proceeds of the sale, after which the stakeholders can litigate over their various interests in the proceeds.
Sales may be by private sale or public auction. Once the sale of property has been authorized by the court, the trustee proceeds to sell the property per the approved terms. A report of sale must be filed upon completion of a sale pursuant to Bankruptcy Rule 6004(f)(1).
B. Notice of Proposed Sale
Notice of the proposed sale must be sent to the debtor, committees, any indenture trustee and all creditors at least 21 days prior to the proposed date of the sale. Fed. R. Bankr. P. 2002(a) (2) and 6004(a). The notice must contain the time and place of any public sale and the terms and conditions of any private sale. The notice should also contain the time within which any objections to the sale must be filed and a hearing date to resolve objections. Fed. R. Bankr. P. 2002(c)(1); see Bankruptcy Manual Form No. 144, "Notice of Proposed Private Sale"; and Bankruptcy Manual Form No. 145, "Notice of Proposed Public Sale of Property and Notice of Compensation to Auctioneer." A motion to sell free and clear must also be served on the parties who have liens or other interests in the property to be sold. Fed. R. Bankr. P. 6004(c).
C. Sale of Jointly Owned Property
Through an adversary proceeding, a trustee may sell property of the...
