In re Bursztyn and the Issue of Search and Seizure of Debtor Assets

By: Craig Kavanagh

St. John's Law Student

American Bankruptcy Institute Law Review Staff

 

Recently, the New Jersey Bankruptcy Court, in In re Bursztyn,

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held that Fourth Amendment limitations applied to a trustee’s conduct in seeking to search a debtor’s residence with the intention of seizing undisclosed assets.  However, the Court reasoned that, by filing bankruptcy, the debtor had reduced her reasonable expectations of privacy

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and the Court held that the trustee’s actions did not exceed the Fourth Amendment standards of reasonableness.

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In Bursztyn, based on an investigation of court records of the debtor's recent divorce, the trustee suspected that the debtor was hiding valuable jewelry and artwork that was not listed in the debtor’s bankruptcy petition or financial affairs statements.

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The trustee requested from the Court, ex parte, an order allowing her to search the debtor’s home with the hopes of obtaining the art and jewelry that now belonged to the estate.

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The Court granted authorization, and the United States Marshals Service and the trustee served the order upon the debtor at her residence, and proceeded to search her bedroom and closets.

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The search uncovered nearly two hundred pieces of fine jewelry and ten works of art, valued at nearly $250,000.

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Claiming that the search and seizure violated her Fourth Amendment rights, the debtor sought to suppress all evidence uncovered by the trustee’s search.

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The Bursztyn decision is an important one, drawing attention to the constitutional implications of a trustee seeking to zealously fulfill his or her prescribed duties, as well as the legal difficulties posed by a debtor who is potentially withholding property from the bankruptcy estate. As noted by the Bursztyn court, one of the only cases to deal with facts and issues similar to Bursztyn was In re Barman.

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 In that case, a debtor filed for Chapter 7 bankruptcy and claimed his only asset was clothing valued at about $500.

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The bankruptcy trustee filed a complaint against the debtor, accusing him of wrongfully transferring funds to his wife and concealing assets belonging to the bankruptcy estate.

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Like the Court in Bursztyn, the Barman court allowed the trustee to enter the debtor’s home and search, inventory, and appraise his property.

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The debtor claimed that the inspection violated his constitutional rights against unreasonable search and seizure.

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In a decision that the Bursztyn Court relied upon, the court found that while the debtor is protected by the Fourth Amendment from unreasonable search and seizure, the actions taken by the trustee were appropriate, in that he reasonably believed the debtor to be withholding property from the estate.

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The decision in Bursztyn serves to highlight the some of the difficulties of the relationship between debtor and trustee, and how the filing of a bankruptcy petition alters the privacy expectations of a debtor. The court in Bursztyn, along with the court in Barman, both noted a diminished expectation of privacy for the debtor in the eyes of the law, based on the fact that the debtor has essentially relinquished his or her assets to the estate. Further, the decisions likely solidified the belief of trustees and bankruptcy courts that search and seizure is an appropriate means of asset inventory in situations where the honesty of the debtor has reasonably been called into question.