11 U.S.C. 541
In re Griffin, Case No. 04-32325 (Bankr. W.D.N.C. Oct. 27, 2008)(Hodges) - This matter came before the court on the Motion of Trustee to Modify Plan in which the Chapter 13 Trustee sought to increase the female debtor’s plan payments pursuant to 11 U.S.C. § 1329 to require the payment of up to the value of $250,000 in life insurance proceeds. Relying on the reasoning of the Murphy court in In re Murphy, 474 F.3d 143 (4th Cir. 2007), the court held that the doctrine of res judicata barred the modification of the female debtor’s confirmed plan and, consequently, denied the Trustee’s motion to modify. The court found that although the debtor had experienced an unanticipated change in her post-confirmation financial condition, the change could not be characterized as substantial.
Ward v. Chase, Case No. 05-05009 (Bankr. W.D.N.C. October 17, 2006)(Whitley) - Homeowner's bankruptcy Trustee and builder asserted competing claims to fire and casualty insurance proceeds. The builder sought to impress an express, resulting, or constructive trust on the proceeds to pay the construction debt. The Trustee opposed the trust claims asserting that the insurance proceeds were unencumbered estate property, or, alternatively, that the builder's subsequent purchase of the underlying real property at foreclosure sale extinguished his debt or barred further distributions under 11 U.S.C. 508. The Court held that the elements of a trust were not established, therefore the proceeds were property of the estate. The Court further held that the foreclosure extinguished the builder's lien, but not the unsecured debt. In purchasing at foreclosure, the builder was acting as a buyer and not as a lien creditor, therefore his subsequent profit derived from reselling the property did not reduce the debt owed to him by the Debtors. However, as an unsecured creditor, the builder was not entitled to recover interest, property costs, or attorney's fees.
Pitts v. Graybar Electric Co., Inc. (In re Fowler’s Buried Wire Service Inc.), Adv. Proc. 04-1040, Case No. 02-10680 (Bankr. W.D.N.C. Aug. 9, 2005)(Hodges) - This matter came before the court on the Trustee’s Complaint and the defendant’s Counterclaim. In his Complaint, the Trustee sought to recover money paid to Graybar by a third-party that the Trustee asserted was an account receivable of the debtor. The court concluded that the “account receivable” was not property of the debtor’s estate and could not be recovered by the Trustee. The court further concluded that there was no merit to Graybar’s counterclaim.
In re Nicholson, Case No. 05-30168 (Bankr. W.D.N.C. Jan. 27, 2005)(Hodges) - This matter came before the court on the debtors’ Emergency Motion for Turnover of Property seeking the return of a car repossessed prepetition; and Branch Banking and Trust Co.’s Motion for Relief from Stay seeking relief to sell the repossessed car. Applying Tidewater Finance Co. v. Moffett (In re Moffett), 356 F.3d 518, 522-23 (4th Cir. 2004) and In re Jackovich, 04-04514-5-ATS (Bankr. E.D.N.C. Jan. 13, 2005), the court denied the motion for turnover and granted BB&T’s motion for relief from stay because the debtors’ Chapter 13 “cram down” plan of reorganization was insufficient to require return of the car. In order for the debtors to regain possession of a car repossessed prepetition, they must redeem it pursuant to N.C.G.S. § 25-9-623. The court found that the debtors still had their right of redemption pursuant to N.C.G.S. § 25-9-623(c) and allowed the debtors twenty days to modify their plan to redeem the car from BB&T.
In Re Seddon, Case No. 00-31462 (Bankr. W.D.N.C. Nov. 14, 2000)(Whitley) - The Chapter 7 debtor's ex-husband was a former federal employee, with benefits paid through the Civil Service Retirement System. The debtor received a portion of the benefits each month under the terms of a prepetition equitable distribution order. The trustee sought turnover of the funds when the debtor attempted to exclude her interest in the benefits from the bankruptcy estate. The Court held that the Civil Service Retirement Act contains a restriction on the transfer of CSRS payments, and that they are therefore ordinarily excluded from the bankruptcy estate under s 541(c)(2). Furthermore, by expressly allowing payment to an alternate payee under domestic court orders, the Act also recognizes an ex-spouse's ownership interest in any benefits earned during the marriage. As a result, the debtor's interest was properly excluded from her bankruptcy estate even though she was not an employee participant in the retirement plan. Motion for turnover denied.
IN RE RANDOLPH, Case No. 98-40837 (Bankr. W.D.N.C. August 16, 2000)(Whitley) - The Court held that in a chapter 13 case, an inheritance received by the debtor more than 180 days after the filing date is still property of the estate under s 1306. Therefore, the amount of such an inheritance not covered by an applicable exemption must be accounted for in the plan. In this instance the debtor could claim $2,500 of her inheritance as exempt, causing the base amount of her plan to rise by $9,734.74.
IN RE BLACK, Case No. 95-50708 (Bankr. W.D.N.C., April 9, 1996)(J. Whitley) - The debtor's First Union savings plan permitted the debtor to withdraw funds at any time from two "after tax" accounts. The only penalty for obtaining such a loan was a suspension of the debtor's right to make plan contributions for six months. Despite a boilerplate anti-alienation clause in the plan, the Court held this penalty was not sufficient to remove the accounts from the claims of the debtor's creditors. Therefore, these two funds were not excluded from property of the estate by 11 U.S.C. 541(c)(2). A separate account which provided that its funds could not be withdrawn by the debtor until he reached the age of 59 was held to be subject to a valid anti-alienation clause; and, therefore, it was held to be excluded from property of the estate by 11 U.S.C. 54!(c)(2).
HILLIER V. WELLS (IN RE WELLS), Case No. 94-10516, Adv. Proc. No. 95-1115 (Bankr. W.D.N.C., Feb. 23, 1996)(J. Hodges) - The Court held that a post-petition state court judgment, which declared a pre-petition deed conveying all of the debtor's wife's interest in their marital residence to the debtor to be of "no legal effect", was itself null and void as being in violation of the automatic stay provisions of 11 U.S.C. 362. The Court held that, under North Carolina law, the resumption of marital relations after the execution of a marital agreement voids executory provision of the agreement, but it does not void any fully executed provisions. Therefore, the Court held that title to the real property in issue was vested solely in the debtor.
IN RE HARDEE, Case No. 95-31282 (Bankr. W.D.N.C., Nov. 24, 1995)(J. Hodges) - A retirement fund, that was inherited by the Chapter 7 debtor, was not property of the estate under 11 U.S.C. 541, because it contained sufficient non-alienability restrictions and was ERISA-qualified. Furthermore, since the stream of payments from this annuity was future income, the stream of payments was not property of the Chapter 7 estate. The court noted that had the debtor filed under Chapter 13, the annuity payments would be part of the estate.
IN RE SANDERS, Case No. 95-30447 (Bankr. W.D.N.C., Sept. 1, 1995) - As a part of a pre-petition state court action, the debtor was directed to pay a portion of his pension benefits into escrow pending a resolution of an equitable distribution action. While the action was pending, the debtor filed a Chapter 13 petition and sought turnover of the escrowed funds under 11 U.S.C. 549, contending that these funds were property of the estate because he intended to use them for distribution to his creditors. The Court held that because the funds were regular payments from an ERISA-qualified retirement plan, they were not property of the estate and they were not subject to the turnover motion. The Court also noted that because equitable distribution rights do not constitute property interests under North Carolina law, they create only unsecured claims as against the bankruptcy estate of the spouse who has legal title to the property. However, under state law, pension benefits and other deferred compensation rights are potentially marital property that is subject to equitable distribution. It was unclear to the Court to what extent the distributions represented retirement benefits (marital property) and to what extent they represented disability benefits (separate property). Therefore, the Court granted relief from stay to allow the state court to address this issue and conclude the equitable distribution proceeding.
FREES V. GIBNEY (IN RE FREES), Case No. 91-10359, Adv. Proc. No. 91-1490 (Bankr. W.D.N.C., Dec. 23, 1993)(J. Hodges) - Based on a state court judgment ordering the debtor's ex-husband to transfer all of his rights, title and interest in a parcel of real estate to the debtor, the debtor was entitled to turnover of the legal title to this property which constitutes property of the estate under 11 U.S.C. 541.
MAXWAY CORPORATION AND DANNERS, INC. V. CONSOLIDATED SHOE COMPANY, INC. (IN RE MAXWAY CORPORATION), Case No. C-B-88-01027, and (IN RE DANNERS, INC.), Case No. C-B-88-01028, Adv. Proc. No. 91-3369 (Bankr. W.D.N.C., Oct. 27, 1992)(J. Hodges) - The Court held that the debtors' creditor's committee was entitled to summary judgment on its attempt to recover Trade Debt Payments because the payments were preferences under 11 U.S.C. 547(b). The Court found that these payments were not made in the ordinary course of business of the debtors and were clearly made by a debtor who consciously favored certain creditors. The Court held that by singling out specific creditors for payment, the debtor engaged in unusual action outside the ordinary course of its business which makes 11 U.S.C. 547(c)(2) inapplicable. However, the Court granted the creditor's Motion for Partial Summary Judgment regarding other funds that the Court found were collected by the debtor in trust for the creditor. The Court found ample evidence to conclude that the parties intended to create a trust relationship regarding these funds. The Court held that because a debtor does not own an equitable interest in property held in trust for another, such interest is not property of the estate under 11 U.S.C. 541. Therefore, the Court found that when the debtor transferred these funds to the creditor, it was not transferring an interest that it had in property. The Court also held that under North Carolina law, a trustee's commingling of trust funds with non-trust funds will not destroy their identity, and a trustee's withdrawals from a commingled account to those other than the trust beneficiary are presumed to be from non-trust monies.
IN RE THE LITCHFIELD COMPANY OF SOUTH CAROLINA, LTD., 135 B.R. 797 (Bankr. W.D.N.C. 1992) - Under South Carolina law, a partnership may compel its general partners to pay the partnership's debts, and this power becomes property of the partnership's estate under 11 U.S.C. 541(a). As a result, where the debtor is a partnership, 11 U.S.C. 362(a)(3) automatically stays a partnership creditor from enforcing its claim against a general partner. That is, 11 U.S.C. 362(a)(3) prohibits a creditor from asserting a claim against a third-party for its own benefit where the trustee can assert the claim for the benefit of all creditors (citing Steyr-Daimler-Puch of America Corp. V. Pappas, 852 F.2d 132 (4th Cir. 1988)(alter ego action stayed)). Moreover, even if the automatic stay did not extend to a creditor's action against a non-debtor general partner, the bankruptcy court was authorized under the circumstances of this case to affirmatively enjoin the action pursuant to 11 U.S.C. 105(a).
IN RE NIELSON, Case No. 87-10439 (Bankr. W.D.N.C., Oct. 7, 1991)(J. Hodges) - Under 11 U.S.C. 1231(b), when a Chapter 12 Trustee retains dominion and control over property of the estate after confirmation of the Chapter 12 plan, the state tax obligations arising from the sale of the debtor's property should be paid by the estate as an administrative expense pursuant to 11 U.S.C. 503(b)(1)(B).
IN RE ABBATE, Case No. A-B-88-10173 (Bankr. W.D.N.C., Nov. 16, 1988)(J. Hodges) - The debtor was not paying his ex-wife's alimony or support payments. The ex-wife sought to bring an involuntary petition against her husband pursuant to 11 U.S.C. 303(h)(1), and she sought to include her husband's ERISA pension plan as property of the estate under 11 U.S.C. 541. The court allowed the involuntary petition, finding that the ex-wife would be without adequate remedy under non-bankruptcy law, and the case involved special circumstances amounting to fraud, trick, artifice or scam. The court also concluded that the pension plan was property of the estate because it did not qualify as an inalienable trust under N. C. Gen. Stat. 36A-115(b).
IN RE KENNEDY, Case No. SH-B-86-00268 (Bankr. W.D.N.C., Dec. 28, 1987)(J. Hodges) - A creditor sought relief from stay so that it might proceed against property owned by the debtor and his wife as tenants-by-the-entirety. The debtor and his wife had entered into a guaranty agreement with the creditor. The Court concluded that relief must be granted or the creditor would have no chance to obtain a joint judgment against the husband and wife, since the entireties property would be beyond the reach of the creditor, despite the guaranty, as property of the estate protected by the husband's discharge. The Court delayed the entry of the debtor's discharge until such time as the creditor could avail itself of the relief from stay and obtain a judgment lien.
IN RE DeWEESE, 47 B.R. 251 (Bankr. W.D.N.C. 1985)(J. Wooten) - The Court held that the Chapter 7 debtor's interest in a 401K qualified plan was property of the estate under 11 U.S.C. 541(a), which includes even that property which might be exemptible under 11 U.S.C. 522. The Court further concluded that, notwithstanding the ERISA anti-alienation clause, the plan was not a spendthrift trust which would bring it within the exceptions of 11 U.S.C. 541(c)(2). The Court found that although North Carolina law recognizes support, discretionary and protective trusts having the characteristics required by N.C.G.S. 36A-115(b) as spendthrift trusts, the ERISA plan in question failed to satisfy these statutory requirements. The Court noted that a trustee can acquire no greater rights in property than the debtor possesses, and it stated that the full extent of the debtor's interest was a right to share in a future distribution. Therefore, the Court stated that the trustee may wish to abandon this interest because of its nominal present value. In order to satisfy the concern that the Court's determination might affect the tax consequences of the plan, the Court held that the irreconcilable conflict between ERISA and 11 U.S.C. 541 should be determined in favor of the latter, since it was the later in time. Accordingly, where the two provisions conflict, the ERISA anti-alienation clause is implicitly repealed when involved in a bankruptcy context. The Court further held that although these interests would become estate property when a beneficiary filed bankruptcy, such a determination would in no way impair the tax-free status of the underlying ERISA plan or affect its beneficiaries with reference to the same.
GRAY V. MOODY (IN RE MOODY), Case No. A-B-86-00413, Adv. Proc. No. 87-0013 (Bankr. W.D.N.C., May 13, 1988)(J. Hodges) - The debtor requested a creditor to loan funds to a third party. The debtor also owed a debt of his own to the creditor. Shortly prior to filing bankruptcy, the debtor paid $5,000 to the creditor, but it was not clear as to which debt the sum was to be applied. The trustee sued to recover the payment. The court concluded that it was equally likely that the $5,000 was to be applied to the debt owed by the debtor and not to the debt owed by the third party. This made the payment a preference under 11 U.S.C. 547(b)(1) and (2). The payment was also a fraudulent transfer under 11 U.S.C. 548(a)(2). Additionally, the trustee attempted to sue the debtor's partners for payment of the partnership's debts. The court found that the trustee did not have the power to assert claims against third parties on the behalf of creditors of the estate under either 11 U.S.C. 541(a)(1) or 11 U.S.C. 544(a).
IN RE NELSON, Case No. C-B-87-00973 (Bankr. W.D.N.C., March 3, 1988)(J. Hodges) - The court determined that a creditor had a secured claim in the debtors' residential property to the extent such property had equity above the aggregate of all mortgages and the debtors' claimed exemption under 11 U.S.C. 522(f). The court concluded that a computer was a tool of the trade under N.C.Gen.Stat. 1C-1601(a)(5). The female debtor's claimed exemption for her interest in a profit sharing plan was proper, and the plan was property of the estate under 11 U.S.C. 541(a) and 11 U.S.C. 541(c)(2), but the fund did not have to be turned over to the trustee. Finally, the court concluded that because the debtors had substantial income above what was listed on the petition and had listed questionable expenses, under 11 U.S.C. 1322(a)(1) and 11 U.S.C. 1322(a)(2), their plan could not be confirmed as proposed.
IN RE ROARK, Case No. C-B-83-00100 (Bankr. W.D.N.C., June 28, 1984)(J. Wooten) - The Court held that child support payments are not a property interest which comprises a portion of the estate of a debtor/custodial parent under 11 U.S.C. 541, because the custodial parent does not have legal title to the payments and is only a trustee for his or her minor child.