More Assets Overlooked by Debtors-In-Possession & Trustees

 Another class of assets typically overlooked by liquidators are unclaimed dividends deposited in U.S. Bankruptcy Courts.

In a bankruptcy case, the bankruptcy trustee “dividend” checks to creditors of the debtor in payment of allowed claims.  Since payment of these claims often take years, a creditor’s address may change and some of these checks get lost and go uncashed.  At the conclusion of the bankruptcy case, the trustee is obligated to turnover the proceeds of uncashed checks to the bankruptcy court with a list of the payees.  The court eventually remits those funds to the U.S. Treasury.

A creditor who discovers that it is owed an unclaimed dividend can claim payment from the court at any time.  It is a difficult job to search for these unclaimed dividends since most bankruptcy courts do not have a list of those unpaid creditors online.  Some courts will send a copy of the list upon written request.  Other courts require you to personally appear and review records in the courthouse –  – a tedious procedure to be sure.

Some of these unclaimed dividends are substantial.  I know of a case in which the former attorneys for a liquidated debtor, in a case long closed, received a $300,000 check in the mail, payable to its now-defunct client, in payment of a claim filed by the client in another bankruptcy case years ealier.

The liquidated debtor reopened the case years after it had been closed to deal with the new-found money.  Fortunately, in this case, the check was mailed to a law firm rather than to the creditor itself.  Had it been mailed to the creditor, it would have been returned as undeliverable and wound up in the federal treasury for use by the U.S. Government rather than the creditors of the bankrupt.

How can a bankruptcy trustee know if its debtor has pending claims in bankruptcy?  It’s nearly an impossible task to find an answer to that question with any certainty.  The best a trustee can do for the creditors in the bankruptcy is to try to sell contingent and known and unknown assets.  The trustee thereby fulfilled its obligation to maximize asset value by realizing some money for these unknown and unclaimed funds.