Post-petition appreciation
in value:
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. Read
more...
Property held for a third party:
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.
Trusts:
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.
Insurance renewal commissions (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).)
Money
in bank accounts.
ARS 33-1126(a) protects up to $150 (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).
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.
http://caselaw.lp.findlaw.com/data2/circs/9th/0035075p.pdf
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.
http://caselaw.lp.findlaw.com/data2/circs/9th/9956131p.pdf
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)
http://caselaw.findlaw.com/data2/circs/9th/0056431ap.pdf
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.
ttp://caselaw.lp.findlaw.com/data2/circs/9th/0117240p.pdf
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.
http://laws.findlaw.com/us/000/02-458.html
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.
http://caselaw.lp.findlaw.com/data2/circs/9th/0416539p.pdf
Personal Injury –
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, 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.
Read more...
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.
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.
http://caselaw.lp.findlaw.com/data2/circs/9th/0256999p.pdf
WAGES VS ACCOUNTS RECEIVABLE:
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."
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