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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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When there is a court ordered payment plan for a property settlement,

Customer Question

When there is a court ordered payment plan for a property settlement, payments to the debtor through 2014, and the debtor files bankruptcy, can the trustee (filing an adv. proc.) demand full payment in toto without an acceleration clause in the original order, of the payments due post-petition? It seems that the debt matures monthly, is not payable on demand (no stipulation in the original order) nor payable on order (no acceleration clause). Opinions?
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 3 years ago.
Hi JACustomer,
Assuming that is what the trustee is in the process of doing, what Bankruptcy Code section did he use to support his position?
Customer: replied 3 years ago.
In the adv. pro. complaint:
Action: Turnover pursuant to 11 usc 542

Support:
Jurisdiction: 28 usc 1334
Core proceeding: 28 usc 157(b)(2)(E)
Proceeds of divorce property settlement: 11 usc 541
Violation cited by trustee in the complaint under: 11 usc 542

It seems the basis for the trustees claims stem essentially from 541 and 542. 542 however explicitly states "...an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee..." I assume her argument is that the debt has been adjudicated and thus property of the estate, however, if future payments ARE 'matured' (unsure, no case law I can find) can the trustee make demand in toto or is she bound to wait monthly as ordered, OR are the payments outside her scope for turnover under 542(b).
Expert:  cfortunato replied 3 years ago.

The Bankruptcy Code clearly states the property settlement belongs to the Bankruptcy estate. However, there is no authority to support a demand for the entire settlement upfront, instead of allowing it to be paid over time - pursuant to the property settlement.

Additionally, the Bankruptcy trustee is allowed to keep the case open as long as necessary to get the assets, even for years.

In other words, I don't see how the trustee can prevail in a demand for payment in full upfront, instead of over time.

However, the Bankruptcy trustee is allowed to negotiate with you, and offer you a deal whereby you would be allowed to pay a portion of the total amount owed if you pay it upfront. I think this is the trustee's actual goal.

 

I think this is what you wanted to know. If not, please let me know.
Thank you!

Customer: replied 3 years ago.
Is that clearly expressed? Where?
Is the amount not paid not matured though? Does that not instead go to the debtor after bankruptcy?
Also property of the estate, 541 (a)(6) [] Such estate is comprised of all the following property, wherever located and by whomever held:[]... (6) Proceeds, product, offspring, rents, or profits of or from property of the estate, ***except such as are earnings from services performed by an individual debtor after the commencement of the case.

Are the payments due post-petition not matured and earned after the commencement of the case?
Customer: replied 3 years ago.
Strike the (a)(6), what basis is the whole of the settlement property of the estate?
Expert:  cfortunato replied 3 years ago.
When you asked, "s what clearly expressed?", what part of my answer were you referring to?
Customer: replied 3 years ago.
That the property settlement payments due post-petition are part of the estate. Something that is on point and "clearly" stated.
I can find law on several things for property et al that the debtor has possession of or is due at the time of filing, but not a single thing that speaks to future payments under the bankruptcy laws of a settlement, payment plan, etc.
The adjudication is of a payment plan with the debtor releasing any rights in the property. As of the filing of the chap. 7 case, it is a court ordered payment plan. Amounts due the debtor in the future... I can find nothing on point stating that the estate can lay claim to that. That seems to conflict with 542(b). I can not resolve that conflict. I could see maybe 'owning' the debt as a cc company would and reselling it, but that would take away defendants right to setoff.
Expert:  JoeLawyer replied 3 years ago.
First of all, I want to be sure I understand what you are asking:

Are you asking: (1) Is a payment which has not yet came due at the time the bankruptcy is filed an asset of the bankruptcy estate?

Or: (2) Assuming that payments that have not yet came due are part of the bankruptcy estate, can the Trustee demand acceleration or must the Trustee accept the payments as they come due?

I will apologize in advance because I know this is not the type of detail you are looking for, but I will tell you my understanding of the concept and practice, even if I cannot find a specific holding verifying my understanding.

If you are asking (1) above, then my understanding is that if a debt is owed when the bankruptcy is filed, even payments that have not yet came due are still part of the bankruptcy estate and may be taken by the Trustee. So, if the debtor has the right to receive payments through 2014 at the time a bankruptcy is filed, all future payments become part of the bankruptcy estate and can be administered by the Trustee.

11 U.S.C. 541(a)(1) says that the bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case."

And, I believe the right to receive a payment in the future counts as an equitable interest in that payment today.

If you are asking (2) above, I am not aware of any authority the Trustee has to accelerate the debt and require the payor to pay it all at once. 11 U.S.C. 542(b) says an entity that owes a debt to the bankruptcy estate that is "matured, payable on demand, or payable on order," shall pay the Trustee, but it does not say that an unmatured loan has to be paid all at once. The legislature's silence in giving Trustees acceleration powers in this section implies that Trustees have no such power.

But, I have not seen too many Trustees willing to sit and wait several years to be paid (though they can). Generally, I have seen Trustees settle these types of debts with the payor by negotiating a lump-sum one-time settlement payment so the Trustee can pay the creditors, close the case, and move on.

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Experience: Attorney in the practice of Bankruptcy Law since 1996
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