#7 of 8 in Series — Previous Article #6: Cause of Action Assets Must Be Disclosed Whether Property of Estate or Debtor
Here are four additional bankruptcy cases to consider regarding property of the estate:
In the Matter of Peebles (Case. No 09-60792, Bankr. Court, SD Georgia, Sept. 26 2013)
Inheritance is not property of the estate. More than 180 days after filing the Chapter 13 bankruptcy, the debtor became entitled to receive inheritance of more than $45,000.00. The trustee filed a section 1329 motion to modify the plan to increase the dividend to unsecured creditors. The debtor argued that the inheritance is not disposable income as the Code defines current monthly income as income received in the six full months prior to filing the case. The Court disagreed with the debtor’s position, but ruled that the inheritance was not property of the estate. It then ruled that there is no difference between property that has been exempted and is therefore no longer property of the estate and property such as this inheritance which never became property of the estate. Therefore, similar to exempt property, the trustee may not modify the plan to acquire that property.
Bankruptcy Opinion: In the Matter of Peebles (Case. No 09-60792, Bankr. Court, SD Georgia, Sept. 26 2013)
In re Waldron, 536 F.3d 1239, 1245 (11th Cir. 2008).
The Waldron court found that an amended disclosure pursuant to Rule 1009 was the appropriate vehicle for a debtor to make post-confirmation disclosures. In so holding, the Waldron court observed:
“The disclosure of post-confirmation assets gives the trustee and creditors a meaningful right to request, under section 1329, a modification of the debtor’s plan to pay his creditors. A confirmed plan may be modified at the request of the debtor, the trustee, or the holder of an allowed unsecured claim to ‘(1) increase or reduce the amount of the payments on claims of a particular class provided for by the plan; [or to] extend or reduce the time for such payments.’ 11 U.S.C. § 1329(a). Payments under a plan are based on the debtor’s disposable income when the plan is confirmed. Id. § 1325(b)(1)(B). When a debtor discloses assets acquired after confirmation, creditors may move the bankruptcy court to modify the plan to increase payments made by the debtor to satisfy a larger percentage of the creditors’ claims. Id. § 1329(a)(1). If post-confirmation assets were not subject to disclosure, modifications for increased payments would be rare because few debtors would voluntarily disclose new assets… [emphasis added].”
The Peebles Court disagreed with the Waldron Court stating,
“Thus, the whole point of the exercise in Waldron was to determine if the asset in question could be included in disposable income. Though not explicitly stated, the clear corollary of the Waldron holding is that non-estate property need not be disclosed because it will never comprise disposable income that might support an upward modification of plan payments. Accordingly, the Court holds that the non-estate property at issue in this case, namely an inheritance received more than 180 days post-petition, is not included in disposable income.” See In the Matter of Peebles (Case. No 09-60792, Bankr. Court, SD Georgia, Sept. 26 2013).
These two cases demonstrate the circular argument for an estate transformation approach, that is: if an asset is not necessary for the fulfillment of the confirmed plan then it is not property of the estate and Rule 1009 would not require an amendment. However, had the trustee or creditors known about the asset then the trustee could have modified the plan under section 1329 to increase the dividend to unsecured creditors and the new asset would be necessary for the fulfillment of the modified plan. Then the debtor would be required to disclose the asset that the trustee had included in the modification.
Bankruptcy Opinion: IN RE WALDRON, 536 F.3d 1239 (11th Cir. 2008)
In re Foreman (378 BR 717 – Bankr. Court, SD Georgia, 2007).
In this case the debtor attempted to amend her schedules to include a post-confirmation wrongful death claim. The Court held that:
“[b]ecause Debtor’s interest in this cause of action arose post-confirmation, the potential asset is not property of the bankruptcy estate as defined by 11 U.S.C. § 541. See Witko v. Menotte (In re Witko), 374 F.3d 1040 (11th Cir.2004) (concluding that “[p]re-petition causes of action are part of the bankruptcy estate and post petition causes of action are not”); see also Telfair, 216 F.3d 1333 (adopting the estate transformation approach to post petition acquired property, and holding that after confirmation only the property necessary for, the execution of the plan remains as property of the bankruptcy estate). Furthermore, because the cause of action is not property of the bankruptcy estate, Debtor is under no ongoing duty to disclose and amend the schedules of her confirmed bankruptcy case.”
The Court denied the debtor’s motion to amend the schedules.
Bankruptcy Opinion: In re Foreman (378 BR 717 – Bankr. Court, SD Georgia, 2007)
Matthews v. Potter, 316 Fed. App’x 518, 522 (7th Cir. 2009)
A Chapter 7 debtor filed a cause of action that originally was not listed in her Bankruptcy Schedules, but she advised the trustee about the claim at the meeting of creditors. The Court of Appeals found the debtor’s oral disclosure of the cause of action to the trustee sufficient to comply with the Code, and enough to prevent the application of judicial estoppel.
“Matthews, in whose favor we must draw all reasonable inferences, states in her affidavit that she informed the trustee about her pending administrative complaints at the meeting of creditors for her Chapter 7 bankruptcy. . . . The Bankruptcy Code contemplates the possibility that a debtor may later discover and inform the trustee of additional assets not already listed on the schedules, given the trustee’s obligations to investigate the debtor’s financial affairs, and to examine the debtor at the meeting of creditors. . . . That is precisely what happened here, at least as far as the record shows, and the inference we draw is that following Matthews’s oral disclosure the trustee determined that her discrimination claims were not sufficiently valuable to warrant pursuing them on behalf of the creditors.”
Bankruptcy Opinion: Matthews v. Potter, 316 Fed. App’x 518, 522 (7th Cir. 2009)
Next Article in Series: Debtor Obligated to Disclose Assets Acquired During Life of Bankruptcy Plan
Sources:  Cornell University Law School Legal Information Institute;  Justia;  OpenJurist;  CaseText;  CourtListener;  Leagle;  Chapter11Cases
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