Property Of The Chapter 11 Bankruptcy Estate In Kansas City

When we speak of the “property of the estate” in a Chapter 11 case, we are speaking of all the legal and equitable interests of the debtor in possession.  A Chapter 11 bankruptcy filing is a very powerful tool, and in some ways the property of a Chapter 11 estate is broader and more far-reaching than the estates for other chapters of the Bankruptcy Code, such as Chapters 7 and 13.  This can can be a valuable tool for the debtor to use as part of his or her reorganization.  In general, the property of the Chapter 11 estate will include the following:

1.  All legal and equitable interests of the debtor in property as of the commencement of the case, with some exceptions.

2.  All interests of the debtor in community property as of the filing of the case that is under control of the debtor.

3.  Any interests in property recovered under certain provisions of the Bankruptcy Code (this is not common)

4.  Any interests in property preserved for the benefit of the estate or, in certain situations, transferred to the estate.

5.  Property that the debtor may become eligible to receive from an inheritance or bequest within 180 days after filing of the case.

6.  Proceeds, rents, or profits from property of the estate.

7.  An interest in property that the estate may acquire after the filing of the case.  The conditions on this provision can be complicated, and will vary from debtor to debtor.

Although bankruptcy law determines what property of the debtor becomes part of the bankruptcy estate, non-bankruptcy law determines whether the debtor owns or has an interest in property. However, any ipso facto clauses in contracts that deprive the debtor of property because of insolvency or bankruptcy are void—if the debtor would have been entitled to the property except for the bankruptcy, then the property is included in the bankruptcy estate regardless of contract provisions or state law to the contrary.

It may also include post-petition property, depending on the chapter of the bankruptcy. Only property and income included in the bankruptcy estate is available to pay creditors. The bankruptcy estate is a new legal entity that is administered by the trustee or the debtor in possession for the equitable benefit of unsecured creditors of the debtor as of the filing date. Most of the property included in the estate is listed in the bankruptcy petition itself.  What is and what is not estate property matters when it comes time to filing the plan of reorganization.  The gist of of most Chapter 11 plans is to extend the time for the payment of debts, to effect a percentage reduction in the amount of of unsecured debts (which often receive some sort of fixed “pool” amount, or nothing), or both.

In a future post, we’ll talk about things that are not property of the bankruptcy estate.  As with so many things, these rules can be nuanced and complicated, so it is critical to speak to your attorney about questions that may arise.

Read More: Interest Rates In Chapter 11 And Chapter 13 Cramdowns

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