What About Bob!" was a popular movie starring Bill Murray about a wacky guy who consumes and overwhelms his psychiatrist, played by Richard Dreyfuss. A similar question, "What about post-petition claims?", can likewise cause a feeling of being consumed and overwhelmed. The starting point in the analysis is a determination of what is "property of the estate" under a confirmed chapter 13 plan. Unfortunately, the Code creates more confusion than clarity.

Unlike the confirmation of a chapter 11 plan that vests all property of the estate in the debtor and terminates the estate, confirmation of a chapter 13 plan results in the continuation of the estate. Under §541(a), the commencement of a case "creates an estate." The property of the estate basically consists of all legal and equitable interests of the debtor in any property as of the commencement of the case. In a chapter 13 proceeding, property of the estate includes not only the property as of the commencement of the case, but also all property acquired after commencement of the case, including earnings from services performed by the debtor.¹ In a chapter 13 proceeding, the debtor remains in possession of all property of the estate.²

Upon confirmation of a chapter 13 plan, the property of the estate vests in the debtor, unless otherwise ordered or provided for in the plan.³ The trustee is representative of the estate and has the capacity to sue and be sued.⁴ The chapter 13 trustee is accountable for all property received but is not required to collect and reduce to money the property of the estate,⁵ requiring the chapter 13 trustee to perform the duties specified in §704(2), among others, but not the duties of §704(1). The debtor has the exclusive right to sell, use or lease property of the estate.⁶

The automatic stay under §362(a) operates as a stay as to any property of the estate, regardless of when the claim arose, and acts as a stay against any actions against property of the debtor for claims that arose prior to the commencement of the case.⁷ The automatic stay terminates when property is no longer property of the estate or at the time of dismissal or issuance of a discharge in a chapter 13.⁸

An issue arises in a number of cases where a chapter 13 debtor incurs a post-petition obligation and the creditor seeks to enforce an action against the property of the debtor through garnishment or attachment. The question is what property is subject to the automatic stay; i.e., what is property of the estate in a confirmed chapter 13?

There is an apparent conflict between §1306(a), which provides that property of the estate includes property and earnings acquired post-petition, and §1327(b), which provides that confirmation of the plan vests all property of the estate in the debtor. If both pre- and post-petition property are property of the estate, then the automatic stay protects property from post-petition claims. If, however, property is held by the debtor and not the estate, then there is no automatic stay, and post-petition creditors would be free to garnish wages and execute upon the debtor's property. Four lines of cases have evolved dealing with the conflicting statutory authority.

The first line of cases, represented by In re Oliver, 193 B.R. 992 (Bankr. N.D. Ga. 1996), and In re Petruccelli, 113 B.R. 5 (Bankr. S.D. Cal. 1990), treats the confirmation order as the termination of the estate and the revesting of all the property in the debtor. These cases emphasize the provisions of §1327(b), requiring the vesting of the property in the debtor upon confirmation. Accordingly, the stay would not protect any property regardless of when acquired.

The second line of cases, represented by Security Bank of Marshalltown v. Neiman, 1 F.3d. 687 (8th Cir. 1993), emphasizes the provisions of §1306(a), which provides that property of the estate includes property acquired by the debtor post-petition and that confirmation does not affect the status of estate property. Thus, all property acquired after the petition is filed is protected by the automatic stay.

The third line of cases, represented by In re Leavell, 190 B.R. 536 (Bankr. E.D. Va. 1995), and In re Ziegler, 136 B.R. 497 (Bankr. N.D. Ill. 1992), only protects property that is devoted to fund the plan, and the balance is not subject to the stay.

The most recent line of cases, represented by In re Holden, 236 B.R. 156 (Bankr. Vt. 1999), and In re Rangel, 233 B.R. 191 (Bankr. Mass. 1999), holds that the property of the estate in existence at the time of confirmation, which would include both the pre-petition property and all property acquired after the commencement of the case and up through confirmation of the plan, would vest in the debtor. Immediately thereafter, any property acquired post-confirmation, including earnings, would become property of the estate and would be protected by the stay. All of the cases, except the second line, leave some or all property subject to seizure and garnishment for post-petition claims.

The matter is further complicated by the fact that the trustee is the "representative" of the estate, but the debtor is in "possession" of property of the estate. Upon confirmation, §1327(b) vests in the debtor property that was previously property of the estate but does not remove the trustee as the representative of the estate.

A number of courts in the order of confirmation provide that all property of the estate is either vested in the trustee or remains property of the estate. This is done to protect assets from post-petition claims and to prevent the debtor from disposing of property without complying with §363. Matter of Roper, 203 B.R. 326 (Bankr. N.D. Ala. 1996) and In re Derr, 37 B.R. 33 (Bankr. D. Minn. 1983). However, the debtor remains in possession of the property and is the only entity authorized to sell or dispose of the property. Nevertheless, the trustee is responsible for all property that he "receives." This poses the following query: When the property vests in the trustee, does that mean that the trustee has "received" the property for the purposes of being responsible for that property? If a chapter 13 trustee is responsible for the property of the estate and for property that is still in possession of the debtor, is a chapter 13 trustee personally responsible for anything that may happen to that property, i.e., failure to have insurance on the property, theft, mysterious disappearance, etc., and for post-petition tax returns?

The Code and the case law do not adequately address these issues. Depending on the jurisdiction, post-petition creditors may execute on the following: pre-confirmation assets only, both pre- and post-petition assets, only assets that are not necessary to fund the plan, or only after the court lifts the stay. Although fraught with potential liability for the chapter 13 trustee, the courts that view all property as property of the estate (rather than vesting the property in the trustee) have fewer problems with post-petition claimants interfering with the chapter 13 plan process. Such creditors can participate in the plan pursuant to §1305, request stay relief or await consummation or dismissal of the case. Further, the chapter 13 trustee has a stronger argument against being responsible for the property of the estate, since the debtor remains in possession and the property never "vests" in the trustee.

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Footnotes

¹ §1306(a). Return to article

² §1306(b). Return to article

³ §1327(b). Return to article

⁴ §323. Return to article

⁵ §1302(b). Return to article

⁶ §1303. Return to article

⁷ §362(a)(1)-(7). Return to article

⁸ §362(c). Return to article