What do I do if the bankruptcy trustee is demanding I return some of the collateral? 20 Answers as of December 12, 2011

This would relate to the holder of the security interest and not the trustee. It is incumbent upon the declared lien holder to demonstrate a valid security interest. You may then have the option of redeeming the property for its current market value. As opposed to the case with motor vehicles, for example, holders of security interests in much-depreciated personal property like electronics or lower-end jewelry are not prone to invest in actual recovery. Contact your bankruptcy attorney for more information. This answer (as well as our Web site) doesn't address all facts & implications of the question; it's general info, not legal advice to be relied upon; it creates no attorney-client relationship; it may be pertinent to CA only; it's independent of other answers.

If you do not have the asset there is nothing that they can do to collect it.

Return what jewelry you have and explain to the trustee what happened to the other items. You may have to pay the value of the lost items in order to preserve your discharge. Failure to comply or successfully counter the trustee's demands will result in the loss of your discharge.

Unless there was an order prior to your discharge to "return" your jewelry, the Trustee cannot request anything from you after a discharge.

You tell them what happened to the stuff you lost. Then you set up a payment plan for what you still have or return it.

There is a saying about closing the barn door after the horses have been stolen. As a general matter, if the jewelry were properly exempted, or the security interest investigated for validity this perhaps might have been avoided. After a debtor receives a discharge, it is difficult to go back and make a claim against what is now property of the estate. Without giving advice, more trustees seem to be using this tactic to get oil out of what used to be a dry hole. This is why people hire attorneys to file bankruptcy, although even with attorneys, some trustees still use this tactic. As an aside, the question comes up that if you do not possess some jewelry you purchased, why was it listed on the petition in the first place and what happened to it? The trustee will almost certainly be asking these questions. However, if it is not the trustee's attorney making the request, then it may be an attorney for the original creditor claiming a "purchase money security interest" or "pmsi" and seeking return. As a hypothetical example only, I believe Zales has been known to use this tactic post-bankruptcy. A smart attorney would make them prove the pmsi. I won't go into any tactics here on a general open forum, but there are legal defenses to a claim of a pmsi, even if a creditor has paperwork. If a lawyer filed your case, he should know what to do in this situation.

You'll need to reach a settlement with the company as you fraudulently sold a secured asset.

Did the creditor file a proof of claim and did you claim the jewelry as secured or unsecured in your petition? If you filed it as unsecured and the creditor did not do what is needed to secure their claim then they not only can't have it back but they are violating bankruptcy law by demanding a return of the property.

The trustee will generally pursue a judgment against you that will then turn to a lien once it is perfected. This lien will attach to any real estate in your name, and they can collect like any other judgments, which include freeze bank accounts and garnish salaries. Or you can fight the trustee or settle.

You have a serious problem which you should have addressed in your case. More precisely, your lawyer should have. If you didn't use one, see one now to see the implications of your mishandling of this.