Property of the bankruptcy estate
This is a fundamental concept in bankruptcy law, since it
determines what assets are available to pay creditors.
The Bankruptcy Code
defines "property" very broadly as all legal and equitable interests of the debtor
and any property that is community property of the debtor and his spouse.
11 U.S.C. 541. Even the property that the debtor selects as
exempt property is "property of the estate" until the exemption claims
are final (generally 30 days after the 341
In addition to the obvious and tangible assets of the
debtor, property of the estate also includes such things as
- the right to file a lawsuit;
- the right to inheritances received within 6 months after
the bankruptcy is filed;
- tax refunds for prepetition
years and intellectual property and even
- tax attributes such as loss
The most important exceptions to the all encompassing
definition of property of the estate are the debtor's rights in spendthrift
trusts and in ERISA qualified retirement plans and 401K plans; those kinds
of property are not "property of the estate".
If an asset
is not property of the estate, the debtor does not have to claim it exempt to
protect it from creditor claims: it is, by definition, beyond the reach of
creditors and the trustee.
More on retirement savings in bankruptcy.
When is property of the estate no longer property of the estate?
When an exemption as to that property has become
final, or when the property is abandoned by the trustee, it loses its
character as property of the estate.
trustees abandon property? Property is abandoned when its net value to the
estate is minimal or less than the costs of liquidating it or when the tax
burden triggered by a sale would exceed the available sale proceeds.
Abandonment occurs either on motion during the case, or at the conclusion of the
case, by operation of law. Any property listed in the schedules that the trustee does
not administer (sell) is deemed abandoned upon the closing of the case.