Cite as: Keith M. Lundin, Lundin On Chapter 13, § 46.12, at ¶ ____, LundinOnChapter13.com (last visited __________).
The broad definition of property of the estate in a Chapter 13 case has dragged all manner of legal and equitable interests in real and personal property into the estate. Testamentary interests of Chapter13 debtors may be property of the estate.1 Community property interests become property of the Chapter 13 estate.2 Easements and other interests in real property that are less than full ownership come into the Chapter 13 estate with exactly the attributes held by the debtor before the petition.3 Interests in property awarded to the debtor or held for the debtor in divorce proceedings in a state court become property of the Chapter 13 estate.4 Interests in property transferred to the debtor before or after the petition by deed, by trust or by distribution all become property of the Chapter 13 estate.5
The debtor’s interest in a checking account is property of the Chapter 13 estate though third parties may have rights in the same fund based on items in transit or checks presented after the petition.6 When the debtor’s employer forgave a debt on the debtor’s residence, the forgiveness of indebtedness income that resulted when the residence was sold was property of the Chapter 13 estate.7
One recurring problematic fact pattern in Chapter 13 cases is the debtor in possession of real or personal property that is titled in someone else but with respect to which the debtor has contributed money to acquire or maintain it. For example, in Heritage Federal Credit Union v. Cox (In re Cox),8 title to a residence was in the debtors’ daughter, but the debtors, the daughter and a mortgage company knew the property was intended to be used and ultimately owned by the debtors. The bankruptcy court found that a “resulting trust” arose in favor of the debtors when the property was conveyed to their daughter, and thus the property and the mortgage on the property were the debtors’ for purposes of their Chapter 13 case.9 Similarly, in Washington v. GMAC (In re Washington),10 the debtor’s father purchased a car, the father signed the car loan and the car was titled in the father, but the debtor had possession of the car, the debtor provided the down payment and the debtor made monthly payments. The bankruptcy court concluded that the debtor had a property interest in the car because the “agreement between the debtor and her father resulted in some form of bailment and it is this interest that constitutes property of the estate.”11 Another bankruptcy court held that a Chapter 13 debtor had an (unspecified) interest that became property of the estate protected by the automatic stay when the debtor resided on real estate titled in the nondebtor spouse.12
At the fringes, bankruptcy courts have resisted efforts by Chapter 13 debtors to include in the estate property interests that are not recognized by state law or that simply defy logic or reasonableness. For example, one bankruptcy court found that a debtor’s testamentary interest in real property owned by his mother was too tenuous to be a property interest protected by the automatic stay because the debtor’s mother might write a new will or survive the debtor.13 A driver’s license is a privilege and not property of the Chapter 13 estate.14 A Chapter 13 debtor had no legal or equitable interest in cars titled in the debtor’s wholly owned corporation when the debtor voluntarily dissolved the corporation a month after filing the Chapter 13 case.15 Thirty-five minutes prevented other debtors from capturing stock of a closely held corporation for the Chapter 13 estate when an escrow agent in possession of the stock received notice at 2:14 p.m. that the debtors were in default of the escrow agreement and the debtors filed their Chapter 13 case at 2:49 p.m. on the same day.16 Not even 20 years of “adverse possession” could transform a Chapter 13 debtor’s occupancy of rental property into full-blown ownership.17
1 See Burg v. Buffalo (In re Burg), 295 B.R. 698, 702–03 (Bankr. W.D.N.Y. 2003) (Debtor’s interests as executrix and heir under deceased mother’s will became property of Chapter 13 estate and invoked automatic stay against tax foreclosure. Debtor inherited real property in 1985 but failed to record a deed. Seventeen years later, during a Chapter 13 case, City of Buffalo sold the property for delinquent taxes. “[T]he debtor possesses legal and equitable interests that derive both from her status as executrix and from her rights as an heir of her mother’s estate. . . . As the executrix, the debtor holds a legal interest in any property that was previously titled to the decedent . . . . [P]roperty of the bankruptcy estate must include the debtor’s interest as executrix in all of the decedent’s assets. . . . Since the death of [the debtor’s mother] . . . Burg has owned the property . . . . As both executor and heir of her deceased mother, Rebecca Burg acquired a bundle of legal and equitable interests in the property . . . . [H]er bundle of interests became property of her bankruptcy estate when she filed a petition for relief under chapter 13.”); Bunch v. Hopkins Sav. Bank (In re Bunch), 249 B.R. 667, 670 (Bankr. D. Md. 2000) (Debtor’s rights as beneficiary of his deceased mother’s estate become property of the Chapter 13 estate and are protected by the automatic stay. The debtor’s mother died before the petition, and the debtor was appointed personal representative. The debtor was also the sole heir. Mortgage holder proceeded with foreclosure sale after the petition. “[W]hile it is true that the debtor held bare legal title to the property in question as personal representative, as the defendants acknowledge, it is equally clear that he also held an equitable interest in his mother’s property as the decedent’s sole heir and sole beneficiary of her estate, which had vested in him at the time of her death, well before the debtor filed bankruptcy. . . . [H]e was in possession of the premises . . . . [I]nsofar as the debtor had some possessory interest in the property, whether legal or equitable, the automatic stay took effect on the date the bankruptcy petition was filed and remained in effect.”); Weddle v. Nunley, 43 B.R. 415 (Bankr. W.D. Va. 1984) (Vested remainder interest in real property devised under will is property of remainderman’s Chapter 13 estate.). But see In re Walker, 171 B.R. 197, 209 (Bankr. E.D. Pa. 1994) (Debtor’s “testamentary” interest in real property owned by his (living) mother was “too tenuous” to give rise to a property interest protected by the automatic stay. The debtor’s mother might write a new will or survive the debtor.).
2 See In re Pfalzgraf, 236 B.R. 390 (Bankr. E.D. Wis. 1999) (Chapter 13 estate includes community property interest in assets and income of nonfiling spouse that are liable for nonfiling spouse’s prepetition support obligations; support debts are claims but are not entitled to priority because they are not claims of a former spouse or child of the debtor.). But see Hanf v. Summers (In re Summers), 332 F.3d 1240 (9th Cir. 2003) (In a battle involving two Chapter 7 trustees and a Chapter 13 trustee in three related bankruptcy cases—filed by a husband, wife and daughter—real property deeded to three individuals as joint tenants did not become community property and was not “transmuted” by California law.).
3 See, e.g., Mills v. Solomon (In re Mills), 239 B.R. 165, 167–68 (Bankr. M.D. Tenn. 1999) (State court judgment giving debtor right to purchase a permanent easement from a neighbor for $11,808 became property of estate. “This right of ‘possession of the easement’ is not an interest that was foreseen by the drafters of the Bankruptcy Code. While it falls somewhere between a secured claim and a lease, it is probably most analogous to a ‘right of first refusal’ in a contract, or a purchase option at the end of a lease term. . . . This debtor has the option to ‘purchase’ the easement from Solomon for $11,808.00. The debtor’s estate takes no greater or lesser interest than that.” Chapter 13 plan can make lump sum payment to acquire the easement or pay $11,808 in installments at an appropriate interest rate. Possession of the easement is postponed until payment is complete.).
4 See In re Lowery, 203 B.R. 587 (Bankr. D. Md. 1996) (Interest as tenant in common created by a postpetition divorce decree that severed the debtor’s entireties interest in real property either always was property of the Chapter 13 estate or became property of the Chapter 13 estate notwithstanding the change in debtor’s interest after the petition.); In re Ford, 78 B.R. 729 (Bankr. E.D. Pa. 1987) (Property of the estate in a Chapter 13 case includes money held by a state domestic relations court pending partition of the marital estate.); Wilson v. Freeman (In re Freeman), 46 B.R. 636 (Bankr. W.D. Va. 1985) (Chapter 13 trustee may use § 542 to recover $10,000 belonging to the debtor pursuant to a divorce and separation agreement; however, an equitable restriction on transfer of the money contained in the separation agreement is enforceable against the trustee, and the funds may not be used for satisfaction of claims against the estate.).
5 See In re Barnes, 275 B.R. 889 (Bankr. E.D. Cal. 2002) (Spendthrift provisions of self-settled trusts are invalid under California law; debtor’s beneficial interests in trusts are not excluded from bankruptcy estate by § 541(c)(2).); Maurer v. Maurer (In re Maurer), 267 B.R. 639 (Bankr. M.D. Fla. 2001) (Homestead is imposed with an equitable lien because debtors acquired homestead with life insurance proceeds that were subject to a trust in favor of surviving children of the debtors’ uncle.); In re Stowell, 232 B.R. 823, 826–27 (Bankr. N.D.N.Y. 1998) (Fifty percent beneficial interest in a land trust became property of the estate and enlarged to complete ownership of the underlying real property when the other beneficiary transferred his 50% interest to the debtor after the Chapter 13 petition. “Code § 1306 clearly allows for inclusion of property acquired by the Debtor postpetition as property of the estate. Accordingly, as a result of the Assignment, 100% of the Property is now property of the estate and protected by the automatic stay from foreclosure.”); In re Pennino, 211 B.R. 659 (Bankr. W.D. Ark. 1997) (Postpetition quitclaim deed from dissolved corporation transferred a property interest to the debtor under § 1306, and thus the automatic stay is applicable to the debtor’s interest. Relief from the stay may be appropriate after a final hearing.); Lyons v. Federal Sav. Bank (In re Lyons), 193 B.R. 637 (Bankr. D. Mass. 1996) (Although at the petition, debtor did not have an interest in real property owned by a trust, interests in trust property created by postpetition amendments became property of the Chapter 13 estate by virtue of § 1306(a)(1).).
6 See Franklin v. Kwik Cash of Martin (In re Franklin), 254 B.R. 718 (Bankr. W.D. Tenn. 2000) (Checking account became property of the Chapter 13 estate, but postpetition presentment of check by deferred presentment service provider did not violate the automatic stay because of the exception in § 362(b)(11). Debtor can recover the money paid pursuant to the check as an unauthorized postpetition transfer under § 549.).
7 In re Profit, 269 B.R. 51 (Bankr. D. Nev. 2001), rev’d on other grounds, 283 B.R. 567 (B.A.P. 9th Cir. 2002).
8 175 B.R. 266 (Bankr. C.D. Ill. 1994).
9 Accord Ford v. Loftin (In re Ford), 296 B.R. 537, 542–43 (Bankr. N.D. Ga. 2003) (Beneficial interest in residence became property of Chapter 13 estate notwithstanding transfer of title to debtor’s daughter several years before the petition. “The Debtor transferred record title to his daughter for no consideration so that she could obtain a loan for his benefit with the understanding that she would reconvey at least a life estate to him. . . . Debtor has a continuing beneficial ownership interest in the residence on the basis of an implied trust under Georgia cases . . . . Property of the estate under 11 U.S.C. § 541(a)(1) includes . . . a beneficial interest in real estate to which a debtor is entitled under an implied trust.”).
10 137 B.R. 748 (Bankr. E.D. Ark. 1992).
11 137 B.R. at 751.
12 In re Black, 58 B.R. 60 (Bankr. E.D. Pa. 1986). But see Woolum v. Adamovich (In re Woolum), 279 B.R. 865 (Bankr. M.D. Fla. 2002) (Debtor failed to prove constructive trust in one-half interest in commercial property owned by former father-in-law.); Bates v. GMAC, 32 B.R. 18 (Bankr. W.D.N.C. 1983) (An automobile titled in the debtor’s estranged husband’s name is not property of the estate.).
13 In re Walker, 171 B.R. 197 (Bankr. E.D. Pa. 1994).
14 Geiger v. Pennsylvania (In re Geiger), 143 B.R. 30, 35–36 (E.D. Pa. 1992) (A driver’s license is not property of the Chapter 13 estate. “A driver’s license is a privilege and not property . . . Unlike liquor and similar commercial and commercially-oriented licenses that have been held to be property of an estate, a driver’s license is not transferable, does not have a tangible, pecuniary or marketable value and is incapable of financial quantification.”).
15 In re Lane, 215 B.R. 810, 813 (Bankr. E.D. Va. 1997) (Under Virginia law, upon dissolution, the debtor became a fiduciary obligated to liquidate the corporation and distribute its assets to the corporation’s creditors. “[T]he Debtor . . . holds neither an equitable nor legal interest in the vehicles that would allow her to pay the secured debt incurred by the Corporation through her Chapter 13 plan. . . . [T]he Debtor has no equitable property right in the vehicles stemming from her position as stockholder in the Corporation. When she dissolved the Corporation, the vehicles should have been released to the Creditors in satisfaction of the debt incurred by the Corporation.”).
16 Sonitrol Fin. Corp. v. Oklahoma City Abstract & Title Co. (In re Yeary), 164 B.R. 997 (W.D. Okla. 1994).
17 In re Haynes, 283 B.R. 147 (Bankr. S.D.N.Y. 2002).