PERF

The goal of any chapter of bankruptcy is to try and settle debt with creditors. The difference between chapters 7 and 13 is how creditors go about looking for money. Ch13 is a wage-earner plan, in that you have a job and are making money or because you have assets you want to protect – that you don’t want liquidated, or because you want to deal with tax issues, or divorce issues, or to save a house, or to lower the payment on a car.

Section 541* of the Bankruptcy Code is very broad in its definition of “property of the estate” and states:

(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:

(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.

(2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is—

(A) under the sole, equal, or joint management and control of the debtor; or

(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.

(3) Any interest in property that the trustee recovers under section 329(b), 363(n), 542, 550, 554, or 723 of this title.

(4) Any interest in property preserved for the benefit of or ordered transferred to the estate under section 510(c) or 551 of this title.

(5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date—

(A) by bequest, devise, or inheritance;

(B) as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree; or

(C) as a beneficiary of a life insurance policy or of a death benefit plan.

(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.

(7) Any interest in property that the estate acquires after the commencement of the case. 

The Seventh Circuit has defined the scope of Section 541 broadly stating, “When a bankruptcy petition is filed, virtually all property of the debtor at that time becomes property of the bankruptcy estate. Section 541 of the Bankruptcy Code defines ‘property of the estate’ broadly to include all of the debtor’s interests, legal and equitable. United States v. Whiting Pools, Inc., 462 U.S. 198**, 204-05 and nn. 8, 9, 103 S.Ct. 2309, 2313 and nn. 8, 9, 76 L.Ed.2d 515 (1983). ‘[T]he term `property’ has been construed most generously and an interest is not outside its reach because it is novel or contingent or because enjoyment must be postponed.’ Segal v. Rochelle,382 U.S. 375**, 379, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966) (bankruptcy estate includes right to refund). A debtor’s contingent interest in future income has consistently been found to be property of the bankruptcy estate. See In re Neuton, 922 F.2d 1379**, 1382-83 (9th Cir. 1990) (collecting cases). In fact, every conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative, is within the reach of § 541 (emphasis added).” In the Matter of Yonikus, 974 F.2d 901** (7th Cir.1992). 

Note that property of the estate does not include assets that are specifically listed in Sections 541(b)-(c). Among other items, such property does not include funds in an education Individual Retirement Account (IRC §530(b)(1)) if those funds were placed in the account more than a year prior to filing, and subject to certain limitations. 11 U.S.C. §541(b)(5). Such property also does not include funds contributed pursuant to IRC §529(b)(1) for college tuition expenses, again subject to certain limitations. 11 U.S.C. §541(b)(6). The estate also does not include amounts withheld by employers from wages of the debtor, or received by the employer from the debtor as contributions, to ERISA plans under IRC §414(d), deferred compensation plans under IRC §457, or tax-deferred annuities under IRC §403(b). It also does not include amounts contributed by the employee to health insurance plans regulated by state law. 11 U.S.C. §541(b)(7)(B). Spendthrift trusts enforceable under Indiana law would not constitute property of the estate. 11 U.S.C. §541(c)(2).