BANKRUPTCY - COLLECTION OF ASSETS - SATISFACTION OF CONVERSION CLAIM FROM NON-ESTATE ASSETS

It is well-settled that a trustee in bankruptcy must use due diligence in collecting the assets of the bankrupt estate, and that he will be charged with the value of assets lost by a failure to discharge this duty. A difficult problem arises, however, where the bankrupt has converted and wasted estate assets, and subsequently acquires sufficient non-estate assets to equal the value of the assets converted. If there is a method whereby the trustee can obtain restitution for the loss to the estate, he must use due diligence to collect the claim for the benefit of creditors, or be charged with the amount of the loss. The difficulty arises in determining what procedure is to be used to obtain satisfaction.

Reparation might be enforced by threatening the bankrupt with criminal prosecution under the Bankruptcy Act or by withholding the discharge in bankruptcy; both such remedies, however, would require an element of criminal intent in the bankrupt. This comment will concern itself solely with the civil remedies available to the trustee, wherein the intent of the bankrupt is immaterial.