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Bankruptcy in Brief

             a service of the Moran Law Group
 

 

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 meeting).  

What's included

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;  
  • stock options;  
  • 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 carryforwards.

What's excluded

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.  

Why do 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.

 

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