§ 58.3 — Additional Protection for Postpetition Property and Income
Revised: April 30, 2004
The automatic stay protects the debtor, property of the debtor and property of the estate from collection efforts by prepetition creditors.1 In Chapter 13 cases, 11 U.S.C. § 1306 expands the definition of property of the estate in 11 U.S.C. § 541 to include property that the debtor acquires after the petition and earnings from postpetition services by the debtor.2 The expanded definition of property of the estate works in concert with § 362 to protect postpetition property and postpetition income in a Chapter 13 case with the full envelope of the automatic stay. In addition to earnings,3 all real and personal property that comes to the debtor during the case including gifts, loans, windfalls, rents, causes of action and the proceeds from the sale of property, are protected to the same extent as prepetition property.4 If the Chapter 13 plan is carefully crafted, this protection of postpetition earnings and property will survive confirmation and continue during the life of the plan.5
In community property states, §§ 541(a)(2) and 1306(a) combine to expand the protection of the automatic stay with respect to the property and income of a nonfiling spouse. Under § 541(a)(2), the Chapter 13 estate includes all interests of the debtor and the debtor’s spouse in community property at commencement of the case if the community property is under the management and control of the debtor or if community property is liable for claims that would be allowable in the Chapter 13 case.6 Section 1306 expands property of the estate in Chapter 13 cases to include property of the kind described in § 541(a)(2) that the debtor acquires after commencement of the case. It has been held that postpetition income of a nonfiling spouse in a community property state is property of the Chapter 13 estate under §§ 541(a)(2) and 1306(a) and is protected from levy by the automatic stay when the debtor and the nonfiling spouse are jointly liable to the levying creditor.7
1 See 11 U.S.C. § 362(a)(1)–(6).
3 See, e.g., Colon v. Rivera (In re Colon), 265 B.R. 639, 643 (B.A.P. 1st Cir. 2001) (“[A]ctions to collect the [support] obligations from [the debtor’s] liquidated retirement funds and his post-petition earnings necessarily involved pursuit of estate property since the Chapter 13 estate includes not only pre-petition assets, but the property and earnings acquired and earned post-petition as well.”); In re Raspberry, 264 B.R. 495, 499 (Bankr. N.D. Ill. 2001) (Postpetition wages become estate property under § 1306(a)(2) and are protected by the automatic stay. “[T]he Debtor’s post-petition wages . . . are expressly part of the bankruptcy estate pursuant to § 1306(a)(2) and are subject to the automatic stay under § 362(a).”); Sucre v. MIC Leasing Corp. (In re Sucre), 226 B.R. 340 (Bankr. S.D.N.Y. 1998) (Postpetition wages are protected by automatic stay; creditor violated stay by failing to stop a garnishment upon notice of Chapter 13 filing and by failing to return money received from its garnishment after the filing.); In re Manuel, 212 B.R. 517 (Bankr. E.D. Va. 1997) (Debtor’s postpetition wages are protected by automatic stay and finance company violated stay by failing to stop garnishment after notice of Chapter 13 case.); Clark v. United States (In re Clark), 207 B.R. 559 (Bankr. S.D. Ohio 1997) (Debtor’s postpetition and postconfirmation earnings were property of the Chapter 13 estate protected by the automatic stay; IRS violated stay by levying on postconfirmation wages to collect a postpetition tax claim.); In re Scott, 142 B.R. 126 (Bankr. E.D. Va. 1992) (Future earnings of a debtor are property of the Chapter 13 estate.); McCray v. McCray, 62 B.R. 11 (Bankr. D. Colo. 1986) (The automatic stay protects the debtor’s postpetition earnings.).
4 See, e.g., In re Stowell, 232 B.R. 823, 826–27 (Bankr. N.D.N.Y. 1998) (Chapter 13 estate includes interest in a land trust transferred to the debtor after the petition and stay prevents foreclosure of the property contained in the trust. “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 Lane, 215 B.R. 810 (Bankr. E.D. Va. 1997) (Month after Chapter 13 petition when debtor dissolved wholly owned corporation, debtor became a fiduciary obligated to liquidate assets of the corporation and distribute those assets to the corporation’s creditors; automatic stay prohibits creditors from exercising their state law rights in the assets that became the debtor’s responsibility upon dissolution of the corporation.); In re Pennino, 211 B.R. 659 (Bankr. W.D. Ark. 1997) (Automatic stay is applicable to real property quitclaimed to the debtor by a dissolved corporation after the Chapter 13 petition.); In re Lafanette, 208 B.R. 394 (Bankr. W.D. La. 1996) (Postpetition tax refund was property of the Chapter 13 estate, and IRS violated the automatic stay by diverting the tax refund.); 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).); In re Gillis, 92 B.R. 461 (Bankr. D. Haw. 1988) (Rents collected after petition and before rejection of lease are property of the Chapter 13 estate.); In re Euerle, 70 B.R. 72 (Bankr. D.N.H. 1987) ($300,000 inheritance received by the debtor after confirmation); Filmar, Inc. v. White, 63 B.R. 742 (Bankr. N.D. Ill. 1986) (proceeds from the sale of a business); In re Black, 58 B.R. 60 (Bankr. E.D. Pa. 1986) (Automatic stay protects debtor’s property interest in real estate titled in nondebtor spouse.); In re Koonce, 54 B.R. 643 (Bankr. D.S.C. 1985) ($1.3 million won in lottery after confirmation); Fleet v. United States Consumer Council, Inc., 53 B.R. 833 (Bankr. E.D. Pa. 1985) (causes of action whether they arise prepetition or postpetition); Doane v. Appalachian Power Co., 19 B.R. 1007 (Bankr. W.D. Va. 1982) (money loaned to the debtor). See also In re Lovato, 203 B.R. 747 (Bankr. D. Wyo. 1996) (IRS willfully violated discharge injunction by freezing postpetition tax refunds to collect dischargeable prepetition tax debts.).
5 See §§ 207.1 [ Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) ] § 113.11 Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b), 242.1 [ Confirmation as a Defense to Relief from the Stay ] § 124.2 Confirmation as a Defense to Relief from the Stay and 243.1 [ Does Confirmation Dissolve the Stay? ] § 124.3 Does Confirmation Dissolve the Stay?. See, e.g., Clark v. United States (In re Clark), 207 B.R. 559, 563–67 (Bankr. S.D. Ohio 1997) (Where confirmation order overcomes vesting effect in § 1327(b), IRS violated stay by demanding payments and levying on postconfirmation wages to collect postpetition tax claims. “[T]he Trustee is clearly correct that most chapter 13 cases across the nation do not delay the revesting of the property of the estate in debtors as the ‘Dayton Plans’ do. . . . [T]he confirmation order provides that all property of the debtor and of the estate as defined by § 1306(a), which expressly includes postpetition earnings, . . . shall remain property of the estate and shall vest in the debtor only upon dismissal, discharge or conversion. Therefore, no property of the estate and no part of the debtors’ postconfirmation earnings ceased to be property of the estate protected by the automatic stay. . . . The Service may not take any action to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate, nor may the Service act to create, perfect, or enforce any lien against property of the estate, without first obtaining relief from the stay. . . . [T]he Service directly violated the provisions of § 362(a)(3) and (4).”).
6 11 U.S.C. § 541(a)(2).
7 In re Reiter, 126 B.R. 961 (Bankr. W.D. Tex. 1991) (IRS violated automatic stay by levying upon nondebtor spouse’s income after petition, when debtor and spouse resided in Texas, a community property state.). But see In re Nahat, 278 B.R. 108, 116–17 (Bankr. N.D. Tex. 2002) (Applying Texas Community Property law, postpetition earnings of nonfiling spouse are not property of the Chapter 13 estate. “Mrs. Nahat’s personal income is special community property that is not available to satisfy Debtor’s liabilities. . . . With respect to post-petition earnings, 11 U.S.C. § 1306 and the Texas Family Code make it clear that only the post-petition earnings of the debtor are included in the estate and are subject to inclusion in the Plan as a requirement of confirmation. Under Texas law, unlike that of some other community property jurisdictions, Mrs. Nahat’s earnings are hers to dispose of. They do not become property of the estate.”).