§ 46.5 — Proceeds, Rents or Profits from Property of the Estate
Revised: May 21, 2004
The Chapter 13 estate includes rents and proceeds from the use of property that became property of the Chapter 13 estate. For example, proceeds from the sale of milk are property of a Chapter 13 estate when the milk itself and the dairy cattle from which the milk came are property of the Chapter 13 estate.1 Rents that a debtor collects from leasing estate property are property of the Chapter 13 estate that can be used by the debtor to fund a Chapter 13 plan, subject to the adequate protection and other rights of creditors with security interests in those rents.2 When crop land is property of the estate, the debtor’s expectation of a government subsidy for not cultivating that land is also property of the Chapter 13 estate.3 Similarly, when the debtors owned a business at the filing of the Chapter 13 petition, the sale of that business during the Chapter 13 case generated property of the Chapter 13 estate that must be accounted for.4
1 See In re Dias, 24 B.R. 542 (Bankr. D. Idaho 1982).
2 See Cavros v. Fleet Nat’l Bank (In re Cavros), 262 B.R. 206, 211 (Bankr. D. Conn. 2001) (Rents from real property owned by the debtor are cash collateral that can be used to fund Chapter 13 plan notwithstanding absolute assignment of rents to mortgage holder. Distinguishing In re Jason Realty, L.P., 59 F.3d 423 (3d Cir. 1995), “[w]hen an assignment of rents is intended as security for a debt, the rents constitute cash collateral under § 363(a).”); Lyons v. Federal Sav. Bank (In re Lyons), 193 B.R. 637 (Bankr. D. Mass. 1996) (Rents were property of the Chapter 13 estate under § 541(a)(6); rents were cash collateral; and if the debtor can provide adequate protection, rents can be used to fund a Chapter 13 plan.); In re Gillis, 92 B.R. 461 (Bankr. D. Haw. 1988) (Rents collected by assignee of debtor’s lease after filing of Chapter 13 case and before rejection are property of the Chapter 13 estate.).
3 See Peoples Bank of Paragould v. Toombs (In re Toombs), Nos. 3:01-BK-30784M, AP 3:01-AP-3053, 2002 WL 32115829 (Bankr. E.D. Ark. Sept. 25, 2002) (unpublished) (Disputed facts preclude summary judgment with respect to whether bank perfected security interest in debtors’ expectation of government agricultural payments that otherwise became property of the Chapter 13 estate.).
4 See Filmar, Inc. v. White, 63 B.R. 742 (Bankr. N.D. Ill. 1986) (Proceeds received by debtors from the sale of their business during a Chapter 13 case are property of the estate. The failure to report and to adequately explain the loss of the proceeds may bar the debtor’s discharge in a subsequent Chapter 7 case.).