Do I Owe Taxes When A Trustee Did Not Handle the Property Correctly?

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“My husband had a business for 20 years that had to file bankruptsy; at the time there were taxes due (we understand that taxes are due regardless of filing). All of the business inventory (worth about $30,000) was transferred to a storage facility & the Trustee was given the keys to the facility.

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We received a call from our attorney after the bankruptsy was finalized; telling us that we could now sell the inventory because the Trustee did not do anything with it. While we were happy to hear this information; however, we found out that the Trustee never paid the storage fees (we were told not to; because the inventory belonged to the gov’t). All of the inventory was sold for about $150. We still owe the tax debt (which IRS is vigorously attempting to collect).”

The debt to the IRS is owed regardless of whether you can find liability elsewhere towards you. The IRS is not going to make a claim in subrogation, so I am not aware of any effective way to point a finger and say “hey IRS we would have had your money if this person did their job, so go after them instead!” Not gonna happen.

Trustees are required to be bonded (TITLE 11, CHAPTER 3, SUBCHAPTER II S 322) and an action can be maintained against that bond for up to two years after the trustee is discharged from the case. The trustee likely did have a duty to properly handle property in his care and control, though you may have also had a continung duty to make sure the rent on the storage was being paid (you may have gotten some bad advice or misheard something). Proper notices of the intent to sell the inventory were sent to someone. The trustee? You? Your bankruptcy attorney? It there was a breach of fiduciary duty or if legal malpractice was committed that caused you actual harm, actions can be maintained on those things as well.

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Author: House Attorney

A house attorney has answered this question.

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