Property Of The Estate

When a debtor files for bankruptcy, almost all of the property they own or are entitled to own and receive becomes the property of the estate. Once this happens, the bankruptcy court through the bankruptcy trustee has the right to administer the selling of such properties to pay off creditors.

Property Of The Estate

What is property of the estate?

Under the Bankruptcy Code, the term property is broadly defined as “all legal and equitable interests of the debtor”. This includes community properties including that of their spouse as well as exempt properties until the claims on exemption are made final which happens 30 days after the creditors’ meeting or the 341 hearing has been held.

Section 541 of the Bankruptcy Code defines which properties are included as property of the estate and provides a broad scope by indicating that all possible interest of the future, debtor, nonpossessory,speculative,contingent, as well as derivative, is within reach of the 11 U.S.C. 541.

By layman’s definition, property of the estate refers to all properties that a debtor owns the moment they file for bankruptcy. However, there are exceptions when properties acquired after filing for a bankruptcy case is not included as a property of the estate like in the case of Chapter 7 bankruptcy. In the case of Chapter bankruptcy, all future incomes and properties within the repayment period which may take up to three to five years is considered as part of the property of the estate.

Property of the estate categories

While the definition of the property of estate under the Bankruptcy Code is broad, it is easy to identify which properties are considered as part of the bankruptcy estate when they are categorized. Below is a list of the categories considered as property of the estate.

Owned property. Any property whether or not it is in the possession of the debtor is automatically considered as property of the estate. This also means that even if a debtor owes money for any particular property or asset that s/he owns, it will still be considered as part of the bankruptcy estate. Exceptions only applies when a debtor possesses an asset or property that s/he do not actually own. However, a debtor who has loaned his/her possession to others will still be considered as part of the bankruptcy estate. There are also cases wherein a debtor has property that s/he is entitled to receive like a commission, accounts receivable, income earned prior to filing the case, owed tax refunds, security deposits, or any other asset with a similar nature will be considered as property of the estate.

Acquiring certain assets by right within 180 days from filing. It is true that properties acquired after filing for a Chapter 7 bankruptcy case will not be considered as part of the estate. However, exceptions apply especially when a debtor becomes entitled to an inheritance, a marital settlement agreement, death benefit plan, or life insurance policy within 180 days after the bankruptcy case was filed. Such assets will be considered as property of the estate.

Community property. All community properties will be treated as part of the bankruptcy estate. In the case of joint bankruptcy, both the property of the debtor’s and debtor’s spouse will be part of the bankruptcy estate.

Income generated by property of the estate. There are instances when an owned property like a rental investment property generates profit when the bankruptcy case is filed, the revenues out of such properties will also be considered as part of the bankruptcy estate.

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