Bankruptcy Isn’t Available If Case Involves Marijuana Assets

DOJ clarifies that trustees can't administer bankruptcy cases involving marijuana, including matters filed in states that have legalized it.

April 27, 2017

On April 27, 2017, the U.S. Department of Justice, Executive Office for the United States Trustees issued a notice advising all bankruptcy trustees against administering cases involving marijuana assets, including those arising in states in which marijuana is legal. Although the policy is not new, the Department identified an uptick in "marijuana asset" cases over the last few months—presumably due to the number of states that have recently legalized marijuana.

(In bankruptcy, all assets are part of the bankruptcy estate. In a Chapter 7 case, the trustee sells nonexempt property for the benefit of creditors. In a Chapter 13 case, the debtor's income is used to repay creditors over a three- to five-year period.)

Although the change in state law seems to have led some personal users and business owners to believe that bankruptcy is a viable option for resolving their debt problems, under federal law, marijuana remains an illegal controlled substance. A federal trustee cannot legally liquidate (sell) or otherwise disperse marijuana (or marijuana-related) assets in a bankruptcy case.

The notice instructs trustees to immediately report any matter involving marijuana-related assets to the U.S Department of Justice. The U.S. Trustee will file a motion asking the court to dismiss the case on the grounds that the trustee cannot administer the illegal assets.

From a bankruptcy filer's perspective, it would be prudent to assume that a debtor could be subject to criminal penalties, as well. If you're considering filing for bankruptcy and you're concerned about this problem, you'll want to speak with an attorney familiar with the issue.

Effective: April 27, 2017