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Bankruptcy | Case Law | Estate Property
PROPERTY OF THE ESTATE
1. Constructive Trust
2. 11 U.S.C. §541(c)(2)
3. §541(a)
4. §541(a)(6)
5. §541(a)(7)
6. §362
7. §363
8. Taxes
9. Other Trusts
10. Misc
1. Constructive Trust
In re Golden Triangle Capital, Inc., 171 B.R. 79 (9th Cir. B.A.P. 1994)
Following Uniform, court finds that check made out to third party which ends up in
debtor’s account is subject to constructive trust, assuming it can be traced.
In re Unicom Computer Corp., 13 F.3d 321 (9th Cir. 1994)
Property mistakenly paid to debtor held in constructive trust
In re California Trade Technical Schools, 923 F.2d 641 (9th Cir. 1991)
1. Money held for student loans was held in express trust, and as such training and
commingling are irrelevant. But where money was not restored to trust account, no constructive
trust available And where money was transferred to restore trust account within 90 days, it was an
avoidable preference.
In re Seaway Express Corp., 912 F.2d 1125 (9th Cir. 1990)
Bankruptcy creditor not permitted to remove property from estate by asserting constructive
trust on real property purchased with secured asset. Real property given to debtor prepetition to
pay an account receivable in which creditor had a security interest
2. 11 U.S.C. §541(c)(2)
In re Cogliano, 355 B.R. 792 (9th Cir. BAP 2006)
The denial of the debtor’s first amended claim of exemption did not preclude her assertion
in her secured claim of exemption that her IRA was not property of the estate. Neither issue
preclusion nor claim preclusion applied, since the issue of property of the estate was not
necessarily decided in the initial exemption decision. Further, the issue of property of the estate
had to be decided by way of an adversary proceeding, not a contested matter.
In re Lowenschuss, 171 F.3d 673 (9th Cir. 1999), cert. denied, 528 U.S. 877 (1999)
Under 11 U.S.C. §541(c)(2) a debtor’s interest in a trust may be excluded from the
bankruptcy estate only if the trust contains a transfer restriction and that restriction is enforceable
under applicable non-bankruptcy law.
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In re Conner, 165 B.R. 901 (9th Cir. B.A.P. 1994), cert. denied, 519 U.S. 817 (1996)
Voluntary contribution by an employee/debtor to an ERISA qualified plan, which could be
withdrawn at any time, were not poe under 541(c)(2) citing In re Reuter, 11 F.3d 850 (9th Cir.
1993)
Patterson v. Shumate, 504 U.S. 753 (1992)
541(c)(2) ERISA - qualified pension funds are not property of the estate.
In re Jordan, 914 F.2d 197 (9th Cir. 1990)
Trust with restrictions to compensate debtor’s personal injury is not a spend thrift trust and
thus not excluded from estate.
3. §541(a)
In re Magnacom Wireless, LLC, 503 F.3d 984, 990 (9th Cir. 2007), cert. denied, 128 S.Ct. 2076,
170 L.Ed.2d 793 (2008)
“. . .[O]nce an FCC license is cancelled, a licensee no longer has any right derived from
that license and therefore has no entitlement to the proceeds from the auction of a new license.” In re Raintree Healthcare Corp., 431 F.3d 685 (9th Cir. 2005) Medicare reimbursement funds that accrued up to the date of the bankruptcy petition were property of the estate. Assignee of the debtor’s Medicare number which was transferred the day before the bankruptcy was not entitled to the reimbursements under Arizona law. In re Jess, 169 F.3d 1204 (9th Cir. 1999) 9th Cir affirmed a B.A.P. judgment, holding that under §541(a) the bankruptcy estate includes the portion of an attorney-debtor’s contingent fee payment that is attributable to prepetition work. 4. §541(a)(6) In re Johnson, 178 B.R. 216 (9th Cir. B.A.P. 1995) Compliance with an anti-competition agreement is not “services performed” for purposes of § 541(a)(6) In re FitzSimmons, 725 F.2d 1208 (9th Cir. 1984) 541(a)(6) - postpetition services of sole proprietor v. product of his employee’s efforts. 5. §541(a)(7) In re Carroll, 903 F.2d 1266 (9th Cir. 1990) 8% to debtor on management contract = poe under 541(a)(7) 6. §362 In re Pintlar Corp., 205 B.R. 945 (Bankr.D. Idaho 1997) The liability portion of a corporate bankruptcy and D&O policy is not property of the 254 estate, thus 362 is inapplicable. 7. §363 In re Gerwer, 898 F.2d 730 (9th Cir. 1990) Trustee in bankruptcy in liquidation or reorganization may compel turnover of property from secured creditor in possession prior to default. Issue arose in context of motion to sell under § 363 8. Taxes Nichols v. Birdsell, 491 F.3d 987 (9th Cir. 2007) A debtor’s pre-bankruptcy application of their right to tax refunds to post-bankruptcy tax obligations constitutes an asset that must be turned over to the bankruptcy trustee. U.S. I.R.S. v. Snyder, 343 F.3d 1171 (9th Cir. 2003) Debtor’s interest in a pension plan was not property of the estate, and thus it could not used to secure the IRS’s claim for delinquent taxes in his chapter 13 case. This is so, even though the IRS is not subject to ERISA’s antialienation provisions. In re Lambert, 283 B.R. 16 (9th Cir. B.A.P. 2002) Money paid to taxpayer under 2001 federal tax cut statute constituted advance refund of year-2001 taxes, not payment attributable to 2000 tax year. Begier v. I.R.S., 496 U.S. 53, 110 S.Ct. 2258 (1990) Trust fund taxes set aside by the debtor prepetition not poe - held in trust for I.R.S. - U.S. v. Randall overruled. - Contra In re Slugg’s Chicago Style In re Sluggo’s Chicago Style, Inc., 94 B.R. 625 (9th Cir. B.A.P. 1988), aff’d 912 F.2d 1073 (9th Cir. 1990), cert. denied, 498 U.S. 1067 (1991) Pre-petition security deposit for taxes is property of the estate 9. Other Trusts In re Cutter, 398 B.R. 6, 19-20 (9th Cir. BAP 2008) 1. Property which the debtor transferred to a self-settled trust became property of the estate. “While California law recognizes the validity of spendthrift trusts, any spendthrift provisions are invalid when the settlor is a beneficiary.” 2. “If. . .the trust agreement allows the debtor-beneficiary to exercise control over and reach trust property contributed by others, the estate is entitled to the maximum amount that the trust could pay or distribute to the debtor-beneficiary.” In re Schmitt, 215 B.R. 417 (9th Cir. B.A.P. 1997) The court did not abuse its discretion in approving the compromise. The debtor’s interest in the revocable trust was not estate property and had little value at the time of the bankruptcy filing. Hence, the probability of successful litigation was low. There were several complex disputed issued which would have made litigation somewhat costly. Applying the Woodson criteria, the compromise was in the best interest of the creditors. Further, it was fair and equitable 255 for the creditors. The fact that the full Trust documents were not provided for the bankruptcy court’s review does not justify reversal. In re Neuton, 922 F.2d 1379 (9th Cir. 1990) 25% interest in spendthrift trust - while the trust does not escape the reach of the bankruptcy estate by virtue of its contingent nature, it is not property of the estate insofar as it enjoys spendthrift status. However, 1/4 of Neuton’s interest in future payments under the trust is unprotected except to the extent that such sum is deemed necessary for the support of appellant or of his dependents. In re Fitzsimmons, 896 F.2d 373 (9th Cir. 1990) Bankruptcy trustee cannot reach debtor- beneficiary’s interest in trust containing forfeiturein- alienation clause In re B.I. Financial Services Group, Inc., 854 F.2d 351 (9th Cir. 1988) Funds pooled in an investment account are property of the estate - no showing of express trust under California law. 10. Letters of Credit In re Onecast Media, Inc., 439 F.3d 558 (9th Cir. 2006) Where the landlord drew down entirely on a letter of credit purchased by the debtor and held by the landlord as security, the trustee was entitled to recover the difference between the landlord’s damages and the balance of the amount drawn down, since that amount was property of the estate. 11. Misc In re Schmitz, 270 F.3d 1254 (9th Cir. 2001) Fishing quota rights enacted after the debtor filed chapter 7 were not property of bankruptcy estate where rights were calculated based on prepetition fishing history and constituted mere possibility when petition was filed. Cusano v. Klein, 264 F.3d 936 (9th Cir. 2001) Listing of prepetition “songrights” in a value of “unknown” “was not so defective that it would forestall a proper investigation of the asset.” Accordingly, the right to post-petition royalties from these assets vested in the debtor upon confirmation of his chapter 11 plan. Unpaid prepetition royalties did not vest in the debtor, because they were subject to a separate listing requirement as causes of action In re Pettit, 217 F.3d 1072 (9th Cir. 2000) Supercedes as bond held in district court registry released to judgment holder before chapter 11 was filed did not become property of the debtor's estate, and thus judgment holder did not violate automatic stay. Property became judgment holder's as of date order signed releasing funds, not date the check was received. In re Moses, 167 F.3d 470 (9th Cir. 1999) 256 Debtor’s “Keogh” plan with valid anti-alienation provision does not qualify as property of bankruptcy estate. In re Tully, 202 B.R. 481 (9th Cir. B.A.P. 1996) Real estate commission pending in escrow at time debtor filed bankruptcy petition was prepetition earnings In re Harrell, 73 F.3d 218 (9th Cir. 1996) Court errs in holding that bankruptcy trustee may sell debtor’s revocable opportunity to renew season tickets - not a property interest under Arizona law In re Chappel, 189 B.R. 489 (9th Cir. B.A.P. 1995) Under Cal. Law, right to probate estate occurs as of time of death. Prepetition decedent’s estate = property of the estate. In re Hammon, 180 B.R. 220 (9th Cir. B.A.P. 1995) Cash deposit posted by debtor contractor in lieu of payment bond constitutes asset of estate, although creditors may have an equitable interest in it In re Wu, 173 B.R. 411 (9th Cir. B.A.P. 1994) Insurance commissions - postpetition services by debtor. The property analysis under Ryerson and Fitzsimmons is to first determine whether any postpetition services are necessary to obtaining the payments as issue, If not, the payments are entirely ‘rooted in the pre-bankruptcy past” Ryerson 732 F.2d at 1426, and the payments will be included in the estate. If some postpetition services are necessary, then courts must determine the extent to which the payments are attributable to the post-petition services and the extent to which the payments are attributable to prepetition services. That portion of the payment allocable to postpetition services will not be property of the estate. That portion of the payments allocable to prepetition services or property will be property of the estate. In re Sluggo’s Chicago Style, 912 F.2d 1073 (9th Cir. 1990), cert. denied, 498 U.S. 1067, 111 S.Ct. 784 (1991) Bankruptcy estate encompasses certificate of deposit provided as required security by debtor business for payment of California sale and use taxes In re Anchorage Nautical Tours, 102 B.R. 741 (9th Cir. B.A.P. 1989) Oral assignment of right to insurance proceeds took property out of estate Matter of Lockard, 884 F.2d 1171 (9th Cir. 1989) Contractor’s license bond is not property of the estate. In re Contractors Equip. Supply Co., 861 F.2d 241 (9th Cir. 1988) Accounts receivable subject to security interest is property of the estate. Williams v. California 1st Bank, 859 F.2d 664 (9th Cir. 1988) Bankruptcy trustee has no authority to pursue claims on behalf of third parties. 257