Prior to appointment of the trustee, can the seller deal with the legal estate after a bankruptcy petition is presented?

• A. Yes
• B. No
• C. Only with court leave
• D. Only if buyer consents

Answer: (A)

When bankruptcy is petitioned, the assets don’t automatically jump into the hands of a trustee the moment the petition is filed. Until a trustee is appointed, the debtor ordinarily retains control over his property and can continue dealing with it. So a sale of the legal estate by the bankrupt seller can proceed before a trustee is in place.

The important point is that the trustee’s power to deal with the estate kicks in upon appointment. A transaction made before that appointment isn’t automatically void, but it can be challenged later by the trustee under the insolvency avoidance rules if it falls into categories like a transaction at undervalue or a preference. In practice, that means the sale can occur, but the buyer and seller should be aware that the arrangement could be revisited by the trustee after appointment.