I just read over on Notary Rotary that the motion was denied by the Court. Apparently counsel for the bankrupt argued that the documents contained sensitive information about borrowers, and that to conform to the requirements of GLB it was best to destroy them.

While the Bankruptcy court is designed to protect the debtor, and  affords little protection to creditors, I do have to say that all of the debtor's actions are scrutinized by both the Trustee and the Court very carefully. Motions such as the one mentioned above are subject to objection filed by a creditor. It would appear that possibly that may have occurred in this case. However, filing an objection is much like a creditor's throwing good money after bad. The creditor has to pay an attorney to draft and argue the objection. In most cases the Court grants motions filed by the debtor which are directed at the survival of the bankrupt corporation.

I recently had a client try to collect debts from a bankrupt. My client had continued to do business with the bankrupt after the debtor filed. My client continued to service the account for a year when the debtor filed a motion to avoid the contract. The avoidance of the contract is a breach, but the breach relates back to the time the debtor filed the petition, and therefore the balance of the contract price became damages subject to discharge by the court. The funds due my client between the time of filing the petition and the avoidance of the contract were deemed administrative expenses which are given one of the highest priorities for timely payment. So in effect my client received payment in full for the interim services it rendered(administrative expenses), but nothing for the delinquent debts that predated the filing of the petition or damages for the avoidance of the contract.

As insane as it may sound ...it may be a good idea for a vendor to do business with a bankrupt during the pendancy of the bankruptcy if its services are granted the status of administrative expenses. As such the debtor is required to stay current on payment for these services.

The craziest case I ever read involved a debtor that bounced a check with one of its creditors. Debts arising from fraud and defalcation can not be discharged in a bankruptcy. The creditor objected to the discharge on that basis. The court ruled against the creditor because the debtor proved he was expecting to receive funds to cover the check at the time he drafted it. As such the bankruptcy court ruled that his conduct did not rise to the level of fraud or defalcation, but rather was only bad business judgment. Go figure.