Transfer In Connection With Bankruptcy

Usually, a debtor’s claim against the U.S. is transferred to the debtor-in-possession or the debtor’s bankruptcy trustee by operation of law.  Therefore, it does not come within the purview of the federal anti-assignment statutes proscription.  Similarly, a transfer of a debt to a creditor to whom a bankruptcy court has directed the assignment by the trustee of the proceeds of the bankrupt’s claims against the U.S. does not violate the federal anti-assignment statutes.

A trustee does not have the right to assign an executory contract of the debtor that violates a specific federal or state law forbidding such an assignment.  However, a trustee may not assign an executory contract of the debtor in violation of a specific federal or state law forbidding such an assignment.

The U.S. Government alone can assert the federal anti-assignment statutes.  Therefore, a debtor-in-possession’s claim that a creditor does not have a security interest in the debtor’s accounts receivable that were payable by the U.S. is not valid.  This rule is applicable even where the creditor has failed to comply with the anti-assignment statutes, because the debtor-in-possession does not succeed to the rights of the U.S.

In Segal v. Rochelle, 382 U.S. 375 (U.S. 1966), the district court had ruled that petitioner, a bankrupt’s loss-carryback refund claims based on losses in the year of bankruptcy passed to respondent trustee as “property” that prior to the filing of the petition the bankrupt party could by any means have transferred.  This ruling was affirmed by the U.S. Supreme Court.  Petitioners’ application to the referee in bankruptcy for award of refunds to them on the ground that bankruptcy had not passed the refund claims to the trustee was unsuccessful.  The Court agreed that the loss-carryback refund claims were both “property” and “transferable” at the time of the bankruptcy petition and hence had passed to the trustee.  The court also held that the fact that a Texas court of equity could and would compel the assignment of any refund received sufficed to make petitioners’ claims transferable.


Inside Transfer In Connection With Bankruptcy