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Bankruptcy Courts Should Implement Constructive Trusts Where Applicable State Law Would Recognize Them According to ABIs Latest Quick Poll

Alexandria, Va.— Bankruptcy courts should implement constructive trusts in any case where applicable state law would recognize them, according to a recent ABI Quick Poll. Fifty-seven percent of respondents (34 percent “strongly” and 23 percent “somewhat”) thought that bankruptcy courts should implement constructive trusts, while 31 percent did not (22 percent “strongly” and 9 percent “somewhat”). Thirteen percent did not know/had no opinion on the poll. Constructive trusts are a creature of state law. In determining whether a trust should be imposed upon property within a bankruptcy estate, courts generally look to state law, which typically requires some showing of wrongdoing or breach of fiduciary duty. However, at least one court has suggested that federal law governs. In addition, some bankruptcy courts have refused to impose constructive trusts because the notion of constructive trusts is at odds with the concept of equity in the Bankruptcy Code because it allows one creditor to receive more than its share of estate costs at the expense of other creditors. An adversary proceeding must be commenced prior to a bankruptcy court implementing a constructive trust because the relief sought is a “proceeding to recover money or property,” a proceeding to determine an “interest in property” or a proceeding to obtain “other equitable relief” pursuant to Bankruptcy Rule 7001(1), (2) or (7), respectively. ABI’s Quick Poll is posted on ABI’s home page, www.abiworld.org. ABI members and the public are invited to respond to a question on a timely bankruptcy or insolvency issue. Visit http://news.abi.org/quick-polls/archive to access the results of previous ABI Quick Polls. ### ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes over 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.