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WHAT IS PROPERTY OF THE BANKRUPTCY ESTATE?

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.  WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.

The issue of wages versus accounts receivable: the difference may lie in whether the debtor has an inalienable right to receive the payments even if he never lifts a finger in the future. If he has that right, then there may be a good argument that it should be something akin to receivables. Conversely, if he still must perform some function in the future in order to get the money, then it can be argued that what he receives in the future is wages with the 75% exemption. In an insurance agent example, are the future commissions guaranteed no matter what? Or must the agent still take future action to make sure the money comes in? Or, for that matter, are there other contingencies in play (e.g. policy cancellations, etc.)? Then there is the question of whether or not taxes are being withheld from the income. If they are, that militates toward wages.

“Wages” is not defined in the Bankruptcy Code. Its definition from the Arizona Revised Statutes is as follows: 23-622. Wages A. “Wages” means all remuneration for services from whatever source, including commissions, bonuses and fringe benefits and the cash value of all remuneration in any medium other than cash.
(dealing with commissions) In re Roetman, 405 B.R. 336 (Bankr. Ariz. 2009); Warfield v. Alaniz, 2008 WL 700160 (D. Ariz. 2008); contra In re Osworth , 234 B.R. 497 (9th Cir. BAP 1999).

Commissions vs wages:

In re Roetman, 405 B.R. 336 (Bankr. Ariz. 2009 HAINES) The Trustee objects to the debtor’s claimed exemption of pre-petition real estate commissions under Arizona Revised “Statute (“A.R.S.”) § 33-1131. The Trustee argues that commissions paid to an independent contractor do not qualify as “earnings” because the exemption statute requires an “employer-employee” relationship. This court does not interpret A.R.S. § 33-1131 to require an “employer-employee” relationship in order for commissions to qualify as earnings, so the Trustees’ objection is denied and the debtor’s exemption claim is sustained.

In re Pruss, 235 B.R. 430, at 433 (8th Cir. BAP 1999) vacated following the dismissal of the bankruptcy case, 22 ( F.3d 1197 (8th Cir. 2000). When dealing with the issue of an attorney’s accounts receivable, the 8th Circuit Bankruptcy Appellate Panel ruled: ‘This court agrees and finds that when an attorney performs legal services, the fees generated constitute “earnings” from the attorney’s personal services. As such, the portion of the fees associated with the attorney’s personal labor fall squarely within the statutory definition of “earnings” in Neb.Rev.Stat. § 25-1558. Labeling the Debtor’s earnings as “accounts receivable” rather than “accrued compensation” does not change the essential fact that these funds constitute compensation earned by the Debtor for rendering personal services. Indeed, every wage earner and salaried employee whose compensation is paid in arrears holds an account receivable; yet, the existence of such a receivable does not change the character of the compensation from earnings to some other category of income.”

(book of business) In re Palmer: 167 B.R. 579, 93-10245-PHX-SSC, Adv. No. 93-1255. (Arizona 1/8/1994)

Once the bankruptcy petition was filed, the Debtor’s contractual right to receive these renewal commissions became property of the bankruptcy estate. As such, the Trustee is now entitled to pursue the contractual right of the Debtor to collect the renewal commissions earned on insurance policies sold prepetition.

Several courts have had the opportunity to address this issue. Those courts which have ruled on this issue have done so after reviewing the contract between the debtor and the insurance company. Generally, the courts have held that if the contract between the debtor and the insurance company requires the debtor to perform ongoing servicing as a prerequisite to receiving the renewal commissions then, and only then, should the renewal commissions not be considered to be property of the estate. In re Kervin, 19 B.R. 190 (Bankr.S.D.Ala.1982) (Court determined that the receipt of the commissions was conditioned upon the debtor meeting performance requirements and continuing to service accounts; as such, the commissions were not property of the estate). In re Tomer, 147 B.R. 461 (S.D.Ill. 1992) and In re Froid, 109 B.R. 481 (Bankr. M.D.Fla.1989) in which the courts acknowledged that the debtors had performed services postpetition; but because those services were not a prerequisite to receiving the commissions, and the majority of the services had been performed to obtain the original policy, the renewal commissions were property of the estate.(17. On a similar issue, if a debtor receives an income tax refund postpetition, the refund will constitute property of the estate to the extent it is attributed to prepetition withholdings. In re Rash, 22 B.R. 323 (Bankr.D.Kan.1982).)

ARS 33-1126(a) protects up to $300 (for each debtor) in one bank account on the day of filing the bankruptcy case. If the debtor has issued checks, but the funds have not yet been physically paid out of their bank account prior to the filing of the bankruptcy – these funds are property of the estate and the Trustee will demand surrender of the funds. The Debtor must reimburse the Trustee for the funds that were in the account on the date of filing, minus their exemption of $150.00. In re Sawyer, Judge Curley 3/06 (9th Circuit).


Check issued vs honored: Lewis v. Kaelin (In re Cresta Technology Corp.), NC-17-1186-BSTa (9th Circuit, Apr 06, 2018) The issue before the bankruptcy court was whether an ordinary check delivered to the creditor prepetition, but honored postpetition, was transferred on the date of delivery or honor for purposes of § 549(a). Relying on Barnhill v. Johnson, 503 U.S. 393 (1992), the bankruptcy court determined that the payment was transferred when the check was honored by the debtor’s bank.


Remotely deposited checks:

Regulation CC now includes new indemnities for remotely deposited checks, new warranties for electronic checks and electronic returned checks, and new indemnities for electronically-created items.  These new rules also modify the expeditious return rules, including by making electronic returned checks subject to those requirements. The final rules were issued on May 31, 2017, and will take effect on July 1, 2018.

The rule therefore shifts the risk of loss to the remote deposit bank.  When the check cashing store deposits the check at its bank and that bank does not get paid on the check by the drawee bank because the check has already been paid, the check cashing store’s bank will be able to recover from the remote deposit bank under the new rules.

Original article by John ReVeal, K&L Gates

The debtor’s membership rights in an LLC—including management rights—become property of the estate under §541. If the sole member of a single-member LLC files a Chapter 7 petition, the Chapter 7 trustee obtains all rights the single member previously held relating to the LLC, including without limitation the rights to manage the LLC and to obtain profits and distributions from the LLC, if any.

Under Arizona law, a judgment creditor can obtain a charging order to attach a judgment debtor’s interest in an LLC. A.R.S. § 29-655(A). However, the charging order allows the judgment creditor to obtain only the “member’s interest” in the LLC. Id. Arizona law defines the “member’s interest” as “a member’s share of the profits and losses of a limited liability company and the right to receive distributions of limited liability company assets.” A.R.S. § 29-601(13). A judgment creditor therefore does not obtain any management rights in the LLC with a charging order under state law. Similarly, the rights an assignee of a member’s interest may obtain are limited to economic rights or dictated by the LLC’s operating agreement and other governance documents. A.R.S. § 29-732(A), (B).

The Chapter 7 scenario is different, because all legal and equitable rights of a debtor become property of the estate under 11 U.S.C. § 541—not just those rights that a judgment creditor or assignee would be granted. In re B&M Land & Livestock, LLC, 498 B.R. 262, 266 (9th Cir. B.A.P. 2013). Section 541(c)(1)(A) “overrides state and contract law restrictions on the transfer of [a] [d]ebtor’s interests in order to transfer all property interests into the bankruptcy estate.” Id., citing In re First Protection, Inc., 440 B.R. 821, 830 (9th Cir. B.A.P. 2010). Therefore, a Chapter 7 trustee has the right to control and make  decisions for a single member LLC, regardless of state law provisions or restrictions set forth in an  operating agreement. Id.; First Protection, 440 B.R. at 830.

Note that a different result could pertain for a multi-member LLC, because the rights and interests of persons other than just the debtor are at stake. See, e.g., In re Albright, 291 B.R. 539 (Bankr.D.Colo. 2003); In re Modanlo, 412 B.R. 714 (Bankr.D.Md. 2006) (discussing relevant concepts in the context of a Chapter 11 case).


Can the trustee seize the member’s interest?  The issue came to a head in the case of Movitz v. Fiesta Investments LLC (In re Ehmann), 319 B.R. 200, 2005 WL 78921 (Bk.D.Ariz., 2005) (“The Court here concludes that because the operating agreement of a limited liability company imposes no obligations on its members, it is not an executory contract. Consequently when a member who is not the manager files a Chapter 7 case, his trustee acquires all of the member’s rights and interests pursuant to Bankruptcy Code §§ 541(a) and (c)(1), and the limitations of §§ 365(c) and (e) do not apply.”).

The Ehmann court allowed a Trustee to take over a Debtor’s interest in an LLC which interest was effectively passive (there was nothing for the Debtor to do to continue to receive distributions), but indicated that if the Debtor’s interest was active (the Debtor had to do affirmatively undertake some acts to gain entitlement to distributions) the Trustee would have been restricted by Arizona law and the terms of the Operating Agreement.  But, see In re Denman, 513 B.R. 720 (W.D.Tenn., July 24, 2014).  If the Denman decision survives appeal and is accepted by other courts, has the potential to create significant problems for the other members of an LLC if one of the members lands in bankruptcy. If Section 365 never applies, then the Trustee will be able to take over all the rights that the debtor-member had in the LLC, even (presumably) if those rights were contingent upon the debtor-member first taking some other action as required by the Operating Agreement. In other words, it may be that the Trustee will be able to take the good without the bad in some situations, which of course may be to the disadvantage of the other members.

Chapter 13 appreciation in real property value (after confirmation of plan) belongs to Debtor.

In re Black, BAP NV 18-1352-FBH, BK 2:14-bk-12402-ABL (11/21/19) Debtor Richard L. Black obtained confirmation of a chapter 13 plan that required him to pay $45,000 to his creditors when he sold or refinanced his rental property. About three years later, he sold the property for $107,000. He proposed to pay $45,000 to his creditors and to retain the excess sale proceeds for himself. Chapter 13 trustee Kathleen A. Leavitt (“Trustee”) moved to modify Mr. Black’s confirmed plan to require him to pay the excess sale proceeds to his unsecured creditors. The bankruptcy court approved the modified plan.
Mr. Black appeals, arguing that he was not required to commit the excess proceeds to his plan payments. He also argues that the Trustee’s motion was untimely and that the modified plan did not meet the statutory requirements for plan confirmation.
We hold that the Trustee’s modified plan was timely and complied with the applicable statutes. But we agree with Mr. Black that he was entitled to retain the excess sale proceeds. Accordingly, we REVERSE.

In our view, the revesting provision of the confirmed plan means that the debtor owns the property outright and that the debtor is entitled to any postpetition appreciation. When the bankruptcy court confirmed Mr. Black’s plan, the Property revested in Mr. Black. See In re Jones, 420 B.R. at 515. As such, it was no longer property of the estate, so the appreciation did not accrue from estate property. Cf. Schwaber v. Reed (In re Reed), 940 F.2d 1317, 1323 (9th Cir. 1991) (“No doubt Debtor’s argument that appreciation enured to him would have merit if his entire interest in the residence had been set aside or abandoned to him; it was not.”


In re: Gebhart United States Ninth Circuit, 09/14/2010 In consolidated Chapter 7 bankruptcy petitions in which the value of debtors’ homes increased so that they had equity in excess of the homestead exemptions, the bankruptcy court’s order approving the appointment of a real estate broker to sell the home for the benefit of the estate is affirmed where the fact that the value of the claimed exemption plus the amount of the encumbrances on the debtor’s residence was, in each case, equal to the market value of the residence at the time of filing the petition did not remove the entire asset from the estate.

In re Harrison, (Bkrtcy.D.Kan.) July 9, 2010: Bankruptcy Estate – Certificate of deposit titled in debtor’s name was impressed with a resulting trust in favor of her grandparents. A certificate of deposit (CD), though titled in the Chapter 7 debtor’s name, was impressed with a resulting trust in favor of her grandparents, a Kansas bankruptcy court held. Thus, the debtor held bare legal title and no equitable interest in the CD, and it was not subject to turnover to the trustee. The debtor’s grandparents provided the funds to purchase the CD, and it was titled in the debtor’s name pursuant to an agreement that it would be held exclusively for the grandparents’ benefit. There was no fraudulent intent, the court found, only an intent by the grandparents to place their savings beyond the reach of those who operate scams that prey upon the elderly. The debtor successfully rebutted the presumption that her grandparents intended a gift to her.

Issues to discuss in determining whether or not trust can be accessed by bankruptcy trustee: Is the trust revocable or irrevocable. Is the debtor the Trustee of the Trust. If not, is there an anti-alienation clause or any clause giving the Trustee discretion on whether to make a disbursement or not. If not, and the Trust can not be terminated, then a Chapter 7 Trustee might sell the stream of income at its current value. A Chapter 13 Trustee would look to the value of the Debtor’s interest in the Trust for Chapter 7 reconciliation purposes. See also: In re Pugh and In re Coumbe, 304 B.R. 378 …A “self-settled” trust is not subject to exclusion from the property of the estate under 11 U.S.C. §541 ( c) (2). In Pugh, 274 B.R. 883 (Bankr. Ariz. 2002); A.R.S. §14-7706.


Money and property held in a trust with a valid spendthrift provision specifying that the beneficiary cannot transfer his or her interest in the trust and has no control over it typically cannot be used to pay off the beneficiary’s creditors in bankruptcy. After your death, your beneficiary can receive distributions, i.e., gifts from the trust, according to the terms of the trust, as long as they are purely at the trustee’s discretion or for certain specific purposes, such as health, education, support, or maintenance. However, any amounts that are distributed prior to bankruptcy or within 180 days after the bankruptcy petition is filed can become part of the beneficiary’s bankruptcy estate and used to pay off creditors.  https://www.mcrazlaw.com/1589-2/

There are numerous, more recent cases reported in the Ninth Circuit, which have concluded that the beneficial interest in a trust, if protected by valid spendthrift language, is not property of the estate. See In re Cutter, 398 B.R. 6 (B.A.P. 9th Cir. 2008); In re Cogliano, 355 B.R. (B.A.P. 9th Cir. 2006). This standard has similarly been followed by Arizona bankruptcy courts, which have concluded that property subject to a valid spendthrift provision with a restriction on the transfer of such beneficial interest is not property of the estate and is beyond the reach of creditors. See In re Kent, 396 B.R. 46 (Bankr. D. AZ. 2008). Perhaps most important for the analysis of the federal law is that in each of the cited cases, the Ninth Circuit BAP and Arizona bankruptcy courts have looked to state law to determine the validity of the spendthrift language and whether such property was beyond the reach of creditors. (Notably, 11 U.S.C. §541(c)(2) references property which includes a restriction on transfer, according to applicable nonbankruptcy law.)

A trust with a “spendthrift clause” should not be considered an equitable interest which may be claimed by the bankruptcy trustee, depending on state law. “A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.” 11 U.S.C. 541(c)(2). The future inheritance is not pre-bankruptcy property, and there is nothing to pull it into the bankrupt estate but see the special rule of Section 541(a)(5)(A),(C).

Would a spendthrift clause be an “exemption” to be disclosed under Rule 1007(h)? The Bankruptcy Rules specifically require a debtor to file a disclosure of the receipt of an inheritance after the commencement of a bankruptcy action. Under Bankruptcy Rule 1007(h), if the debtor acquires or becomes entitled to property under 11 U.S.C. 541(a)(5), “the debtor shall within 10 days after the information comes to the debtor’s knowledge or within such further time the court may allow, file a supplemental schedule in the chapter 7 liquidation case or chapter 13 individual debt adjustment case. If any of the property required to be reported under this subdivision is claimed by the debtor as exempt, the debtor shall claim the exemption in the supplemental schedule.”


Money and property held in a trust with a valid spendthrift provision specifying that the beneficiary cannot transfer his or her interest in the trust and has no control over it typically cannot be used to pay off the beneficiary’s creditors in bankruptcy. After your death, your beneficiary can receive distributions, i.e., gifts from the trust, according to the terms of the trust, as long as they are purely at the trustee’s discretion or for certain specific purposes, such as health, education, support, or maintenance. However, any amounts that are distributed prior to bankruptcy or within 180 days after the bankruptcy petition is filed can become part of the beneficiary’s bankruptcy estate and used to pay off creditors.  https://www.mcrazlaw.com/1589-2/

There are numerous, more recent cases reported in the Ninth Circuit, which have concluded that the beneficial interest in a trust, if protected by valid spendthrift language, is not property of the estate. See In re Cutter, 398 B.R. 6 (B.A.P. 9th Cir. 2008); In re Cogliano, 355 B.R. (B.A.P. 9th Cir. 2006). This standard has similarly been followed by Arizona bankruptcy courts, which have concluded that property subject to a valid spendthrift provision with a restriction on the transfer of such beneficial interest is not property of the estate and is beyond the reach of creditors. See In re Kent, 396 B.R. 46 (Bankr. D. AZ. 2008). Perhaps most important for the analysis of the federal law is that in each of the cited cases, the Ninth Circuit BAP and Arizona bankruptcy courts have looked to state law to determine the validity of the spendthrift language and whether such property was beyond the reach of creditors. (Notably, 11 U.S.C. §541(c)(2) references property which includes a restriction on transfer, according to applicable nonbankruptcy law.)

In re Stern, No. 00-56431/56526 (9th Cir. February 04, 2003) Although a pension plan was properly included within a bankruptcy estate, the pension plan assets were exempt from distribution to debtor’s creditors. (Amended opinion)

Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, No. 02-458 (U.S.S.C March 02, 2004) The working owner of a business may qualify as a “participant” in a pension plan covered by ERISA. If the plan covers one or more employees other than the business owner and his or her spouse, the working owner may participate on equal terms with other plan participants; such a working owner qualifies for the protections ERISA affords plan participants and is governed by the rights and remedies ERISA specifies. Remanded with instructions regarding issue of loan repayments.

Hebbring v. U.S. Trustee, No. 04-16539 (9th Cir. September 11, 2006)
The Bankruptcy Code does not, per se, disallow voluntary contributions to a retirement plan as a reasonably necessary expense in calculating a debtor’s disposable income, but rather requires courts to examine the totality of the debtor’s circumstances on a case-by-case basis to determine whether retirement contributions are a reasonably necessary expense for that debtor.

Title 28 U.S.C. Section 157(b)(5) probably does not apply to PI claims held by DR against others. Such claims are usually considered non-core proceedings, therefore the state law is usually followed. 11 U.S.C. Section 522(d)(11) property exempted by BK estate – (FEDERAL EXEMPTIONS) the DR’s right to receive, or property that is traceable to – includes a payment, not to exceed $16,150 (check statute), for personal injury, not including pain and suffering or compensation for actual pecuniary loss, of the DR or an individual of whom the DR is a dependent, or (E) payment in compensation of loss of future earning of the DR or an individual of who the DR is or was a dependent, to the extent reasonably necessary for the support of the DR and any dependant of the DR; However, pain and suffering and actual damages are specifically not included in calculating the exemption amount. STATE EXEMPTIONS: NO PROTECTION, OTHER THAN WAGES/COMPENSATION: Kahn portion that is wages is 75 percent exempt; legitimate business purposes, if income going to be SSI (and exempt), only protection is that portion that is determined to be future income (but still issue that the “income” is not actually “wages”); If use the money to pay on house, then must have good business purpose in order for courts not to set aside (1 year look back in BK Court, 4 years in State Court);

Kane v. Nat’l Union Fire Ins. Co., No. 07-30611 (U.S. 5th Circuit Court of Appeals, July 14, 2008)
In a personal injury suit, summary judgment for defendants finding plaintiffs were judicially estopped based on their failure to include the personal injury action in their Chapter 7 bankruptcy schedules, as well as a denial of the trustee’s motion to be substituted in that action as moot, are reversed and the case remanded where: 1) the personal injury claim became an asset of the bankruptcy estate upon filing of the Chapter 7 petition; 2) the trustee was the real party in interest and never abandoned his interest; 3) plaintiffs only stand to benefit in the event there is a surplus after all the debts of the estate are paid; and 4) a prior circuit court case did not control the outcome of this case, and the district court abused its discretion in concluding as a matter of law that it did.

NOTE TO ATTORNEYS RE Personal injury – chapter 7 The debtor may, as a practical matter, have more control over the situation than the trustee thinks. The debtor can effectively end the litigation by refusing to cooperate. This may not be in the debtor’s best interest if either (a) the debtor can exempt a portion of the proceeds, or (b) the potential recovery is considerably greater than the claims against the estate (thus leaving the excess to the debtor). The trustee can solve the problem of an uncooperative plaintiff by guaranteeing a portion of the proceeds to the debtor.

As a practical matter the trustee may have made a mistake by not working things out with the debtor’s existing counsel (who probably has a lien for his or her fees, as well). In my opinion, it is best for the trustee to retain the counsel who ‘has’ the case, and to agree to split the recovery so that the debtor has incentive to continue with the case.

A further problem may be state law prohibitions on the assignability of personal injury causes of action. While it is generally held that such prohibitions do not prevent the cause of action from becoming part of the BK estate, a defendant could argue in state court that the trustee, as an assignee, does not have standing to bring suit. If a lawsuit has not been filed, can a trustee file the injury claim lawsuit in his/her representative capacity, without the debtor being a named plaintiff? Or, in other words, can the trustee “force” the debtor to file a lawsuit? Does the duty to cooperate under sec. 521 extend to filing a personal injury action?

Other issues: If the trustee employs the debtor’s PI counsel as “special counsel” to represent the estate in pursing the injury claim, can that attorney also continue to represent the debtor? Does the trustee really have a legal interest in the claim itself, giving him/her the right to control prosecution of the claim, or does the trustee only have an equitable interest in the proceeds of the lawsuit?

The Trustee “owns” the entire claim and not just the proceeds. The Trustee can file the action in their representative capacity without the debtor’s permission. The assignability issue has been resolved in most circuits including the Ninth. See, Sierra Switchboard. Unless there is some dispute to “settle,” the Trustee can’t “give” anything to the debtor to elicit their cooperation. It would violate absolute priority and no court would approve the compromise. But, in California (and I’m sure other states), there are exemptions that are dependent upon the debtor’s “needs.” In such a situation, it is very common for the parties to resolve the split under the guise of a compromise of the disputed exemption claim. At that point, the debtor has the continuing financial interest to fully cooperate and both sides receive what they are entitled to.

2013 – (settlement with several big lenders/servicers).  The settlement applies to the following servicers and loans that were being serviced and in the foreclosure process between January 1, 2009 and December 31, 2010. The servicers participating in the Independent Foreclosure Review settlement include: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.

The settlement stems from enforcement actions that began in April, 2011, initiated by the OCC, the Federal Reserve and the Office of Thrift Supervision.  It appears that those who filed their bankruptcy before April 1, 2011, their payment would not be considered property of the estate because the enforcement action at the foundation of the settlement did not happen until then.  The argument is that until that action and the subsequent enforcement action filed in September, 2011, the borrower had no right to anything.

The settlement refers to people being in the foreclosure process.  The foreclosure process begins long before the date the trustee sale is recorded.  In bankruptcy the questions are – how will the trustee determine that the Debtor was in the foreclosure process between the dates of January 1, 2009 and December 31, 2010?  Will the debtors be required to surrender all or some of the settlement checks.  The legal question is – when did the right to the claim arise: 1) when the foreclosure process began or 2) when the enforcement action took place?  From reading the settlement summary it appears the answer might be the latter, but only time will tell.  See here if you want to know more:  http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/ifr-settlement-faqs.html

In re: Carrie Margaret Neidorf, AZ-14-1496-JuKiPa (9th Cir. BAP 2015)Chapter 7 debtor Carrie Margaret Neidorf (Debtor) scheduled her real property (Residence) as an asset of her estate. There was no equity in the property. Postpetition, the lender obtained an unopposed relief from stay order and foreclosed on the property. Years after the foreclosure, but while her bankruptcy case was still open, Debtor received a postpetition payment in the amount of $31,250 (Foreclosure Payment). The payment was made to Debtor pursuant to a national settlement between banking regulators and certain financial institutions, including Bank of America (B of A). Debtor disclosed her receipt of the Foreclosure Payment to Robert A. MacKenzie, the chapter 7 trustee (Trustee). Trustee then filed a Motion to Compel Debtor to Turnover Estate Property (Turnover Motion), asserting that the Foreclosure Payment was property of the estate under § 541(a)(7). The bankruptcy court denied trustee’s motion, 9th Circuit affirms.

But see: In re: Porrett 09-03881 (Bk Ct, Dist Idaho 3-10-16) In this chapter 7 case, the Court addresses an issue about the scope of property included in the bankruptcy estate.  Post-closing Debtors received settlement from Wells Fargo which represented a post-petition consent order resulting from illegal lending practices in lending practices – diverted qualified borrowers away from “prime” loans, into more expensive “nonprime” loans.  Wells Fargo identified Debtors as entitled to a compensatory payment under the Consent Order.  Debtors’ case was reopened and trustee argued funds are property of the estate. The role played by the release is a critical factor in the Court’s analysis in this case. Because Trustee was required to release potential claims against Wells Fargo in order to receive the Payment, if the Payment was property of the estate, the Payment is likewise property of the estate pursuant to either.  § 541(a)(6) or § 541(a)(7). The Court concludes the Payment is property of the bankruptcy estate.

Cusano v. Klein (09/06/01 – No. 99-56131)(9th Cir. Ct App) Under 11 USC 1141(b), listing of “songrights” written for a band in a Chapter 11 schedule of assets is sufficient to designate copyrights and song royalties such that disposition of the Chapter 11 petition will vest those rights back to the debtor.

Cassel v. Kolb, No. 01-17240 (9th Cir. March 03, 2003) A debtor’s declaration of an interest in trust properties on loan applications constituted an acceptance of his contingent interest in those properties, and that contingent interest is an asset of the bankruptcy estate.

In re Dawson, No. 02-16903 (9th Cir. May 18, 2004) “Actual damages” under 11 U.S.C. section 362(h) does not include damages for emotional distress suffered by a debtor when a creditor violates the automatic stay.

In re Rodeo Canon Dev. Corp., No. 02-56999, 02-57203 (9th Cir. March 30, 2004) Nonbankrupt partner is entitled to disgorgement of the proceeds of the sale of the property, pending the outcome of the property ownership dispute.

Sliney v. Battley (10/16/01 – No. 00-35075) (9th Cir. Ct App) Fishing quota rights granted 18 months after a fisherman filed for bankruptcy are not property of the bankruptcy estate even if the quota was based on pre-filing fishing history.

In re Nebel vs Warfield; 3:16-cv-08240-GMS (AZ District 6/17)  Debtors filed for Chapter 7 bankruptcy on April 29, 2015. Prior to the petition date, Debtors made several payments related to an upcoming ballet course in North Carolina, which their seventeen-year-old daughter was to attend in June and July of 2015. Trustee filed a Motion to Compel Debtor to Turnover Estate Property on November 18, 2015. As relevant here, the Trustee sought turnover of two things: (1) the equivalent value of the payments related to the ballet course, and (2) 25% of the Debtors’ interest in the paid time off (“PTO”) each had accrued at their respective places of employment as of the petition date. BK Court ordered turnover, debtors appealed.

Nothing in § 541 requires that the debtor’s interest be immediately capable of being liquidated into cash in order to constitute property of the estate. To the contrary, § 541(c)(1) provides that such debtor’s interests become property of the estate even though they could not be liquidated and transferred by the debtor under applicable nonbankruptcy law. Moreover, § 542(a) [governing turnover is not limited to property that the debtor can transfer in kind to the trustee, because it alternatively requires that the “value of such property” be delivered to the trustee.

Henry A. KOKOSZKA v. Richard BELFORD, Trustee, 395 U.S. 337 (89 S.Ct. 1820, 23 L.Ed.2d 349) (June 1974) – tax refunds are not “earnings”.

The provision in the Consumer Credit Protection Act limiting wage garnishment to no more than 25% of a person’s aggregate ‘disposable earnings’ for any pay period does not apply to a tax refund, since the statutory terms ‘earnings’ and ‘disposable earnings’ are confined to periodic payments of compensation and do not pertain to every asset that is traceable in some way to such compensation. Hence, the Act does not limit the bankruptcy trustee’s right to treat the tax refund as property of the bankrupt’s estate. Pp. 648—652

PAWNED PROPERTY STILL PROPERTY OF THE ESTATE UNTIL ALL STATE COURT PROCEDURES HAS BEEN FOLLOWED.

In re Sorenson,  BAP No. NC-17-1152-FBTa, Bk. No. 16-52281, Adv. No. 17-05018 (9th Cir BAP 5/25/18) Appellant Schnitzel, Inc., dba R&J Jewelry & Loan (“R&J”), appeals from the bankruptcy court’s ruling prohibiting R&J from disposing of chapter 131 debtor Sydney Eileen Sorensen’s pawned jewelry. R&J argues that the bankruptcy court erred because the jewelry was excluded from Ms. Sorensen’s estate by § 541(b)(8), and she could not extend her right to redeem the property through the bankruptcy process. We AFFIRM the Bankruptcy Court’s decision.

DISCUSSION: In the present case, when Ms. Sorensen filed her bankruptcy petition, all of her interests in her jewelry at that time became part of her bankruptcy estate. See Cty. of Imperial TreasurerTax Collector v. Stadtmueller (In re RW Meridian LLC), 564 B.R. 21, 28 (9th Cir. BAP 2017) (“The nature and extent of the debtor’s interests in property must be determined by nonbankruptcy law.”); Cal. Fin. Code. § 21201(a), (f). The bankruptcy court correctly held that her estate included her right to redeem her jewelry.  California law
specifies that the pawnbroker only becomes vested with full ownership of the property after the ten-day period expires. 

BUT – “Actions taken in violation of the automatic stay are void.” In re RW Meridian LLC, 564 B.R. at 28. Because the ten day notice was void ab initio, R&J did not satisfy the notice requirement was not satisfied.  Therefore Ms. Sorensen’s redemption right was never extinguished, R&J never took title to the jewelry under subsection (f), and § 541(b)(8) did not remove the jewelry from the estate.

Dalton v. Warfield  BAP for 9th CircuitJuly 11, 2018)  Chapter 7 debtor appeals from an order authorizing the chapter 7 trustee to enter into a compromise under Rule 9019 to settle Dalton’s prepetition claims against his former insurance agent, Wade Atchison, for payment of $5,000. At the time of his chapter 7 petition filing, Dalton’s claims against Atchison already had been disposed of by summary judgment in favor of Atchison. Shortly after Dalton commenced his bankruptcy case, Dalton filed a notice of appeal from the summary judgment, but the notice of appeal was untimely, and the district court presiding over Dalton’s claims denied Dalton’s motion for an extension of time to appeal. Under these circumstances, we agree with the bankruptcy court that there were considerable obstacles to any recovery on the prepetition claims. In light of these considerations, the bankruptcy court did not err in concluding that the estate’s creditors would be best served by approval of the compromise. Accordingly, we AFFIRM the bankruptcy court’s order authorizing the compromise.

JAN GLASER and TATYANA KHOMYAKOVA BAP No. NV-18-1175-KuTaB (9th Cir. BAP, 3/5/19)In June 2017, Debtors received a letter from the IRS notifying them that they owed $257,570.46 for the 2012 tax year plus accruing interest and penalties. As it turned out, because they had received a six month extension from the IRS in connection with their 2012 tax debt, Debtors filed their bankruptcy case approximately six days too early to discharge that debt.  BAP concluded “the malpractice claims cannot be deemed to have accrued prepetition as the damages caused by Ms. Guymon’s negligence were suffered by Debtors entirely postpetition.”

Chapter 71 trustee, Shelley D. Krohn (Trustee), appeals from the bankruptcy court’s order denying her motion for (1) a determination that the malpractice cause of action of debtors, Jan Glaser and Tatyana Khomyakova (collectively, Debtors), against their bankruptcy attorney was property of Debtors’ bankruptcy estate and (2) damages for Debtors’ violation of the automatic stay. We AFFIRM.

Pradeep & Rindi Singh v. Rindi Singh, US TE (In re Singh) BAP No. CC-17-1353-FLS (9th Circuit, Mar 14, 2019) Not Published  Ruling: For purposes of § 727(a)(2)(A), “property of the debtor” includes property held by the debtor’s alter-ego. Thus, a debtor who used a corporation that conducted a Ponzi scheme in addition to legitimate business could properly be found to be the debtor’s alter-ego, and funds that were deposited in and disbursed through that corporation’s bank account could constitute property of the debtor’s bankruptcy estate.