Chapter Fourteen. Property of the Estate and Turnover Complaints After reading this chapter, you will be able to:

Define “property of the estate” Identify those assets which are not property of

the estate and therefore not subject to the trustee’s administration

Describe the trustee’s various rights to recover estate property, the turnover rights and the avoiding powers

Property of the Estate

All property in which the debtor has a legal or equitable interest at the commencement of a case is property of the estate.

During the course of the case, the trustee must “administer” all the property.

The figure (next slide) illustrates a typical consumer no-asset Chapter 7 where all property is either collateral for one or more secured creditors, exempt, or abandoned by the trustee as burdensome or of inconsequential value to the estate.

Avoiding Powers

The ability of a trustee to set aside certain pre- or postfiling transactions that might otherwise be valid under nonbankruptcy law.

Preferences, fraudulent transfers, and the ability to set aside unauthorized postpetition transfers are the most common of the trustee’s avoiding powers.

Property of the Estate

Ipso Facto Clause

A clause in a contract defining insolvency or a bankruptcy filing as an act of default.

These clauses generally are not enforceable in bankruptcy proceedings.

Spendthrift Trust

A trust containing a clause precluding invasion of the trust assets to satisfy the debts of a beneficiary.

Included as Property of the Estate

Community property Property recovered by the trustee Property acquired within 180 days of filing by

bequest, inheritance, or devise, domestic property settlement, life insurance proceeds

Proceeds, product, or offspring from property of the estate

Property subject to an ipso facto clause

Excluded as Property of the Estate

Personal postfiling earnings of an individual Chapter 7 or 11 debtor

Powers exercisable for the benefit of another (e.g. power or attorney)

Interest in an expired nonresidential lease Principal assets of a spendthrift trust Property in which the debtor holds bare legal

title

Turnover

The concept of turnover is simple. Someone has property of the estate: It may

be the debtor, it may be a third party, it could be anyone.

If the third party refuses to voluntarily turn the property over to the trustee, the court can order the third party to turn it over.