When a debtor files for bankruptcy, he or she creates a “bankruptcy estate.” In broad terms, this estate is composed of any legal or equitable interest of the debtor in property as of the commencement of the case.  To note, the legislative history indicates that a bankruptcy filing “bring anything of value that the debtors have into the estate.” The purpose of the bankruptcy estate is to collect the debtor’s property and provide for an equitable and fair distribution of property to the creditors. Read further for a basics of the estate.

Estate interests

A debtor’s interest in a bank account is property of the estate, and if a debtor draws checks pre-petition that have not cleared at the time of filing, the funds are property of the estate. A right to an income tax refund or economic stimulus payment for pre-petition periods is property of the estate. The same is applicable for a pre-petition tax credit.

Income earned pre-petition but received after filing is property of the estate. Similarly, a debtor’s right to receive alimony pursuant to a pre-petition judgment is property of the estate.

In fact, “every conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative, is within the reach of § 541.” It is important to understand that property of the estate is all encompassing, including interests of the debtor and the debtor’s spouse in community property, any interest in property that the trustee recovers, or which is preserved for the benefit of the estate, and some property in which the debtor did not even have an interest on the date the petition was filed. Such “non-interests include property that the debtor acquires, or becomes entitled to acquire, within 180 days after the filing date, through an inheritance or as a beneficiary of a life insurance policy or a death benefit plan. Thus, the bankruptcy estate covers certain future interests

Property acquired post-petition

There is an important distinction between property acquired by the debtor and property acquired by the estate after the commencement of the case. During a Chapter 7 bankruptcy case, property acquired by the debtor after the commencement of the case, unattached to pre-petition property such as wages, does not become property of the estate. In contrast, any post-petition gain through a pre-petition asset becomes property of the estate. For instance, if a debtor owns rental property acquired pre-petition then any rent earned post-petition becomes property of the estate.

It should be noted that during a Chapter 13 bankruptcy, where the assets remain in the possession and control of the debtor, all such assets are property of the estate. In addition, any proceeds, product, offspring, rents, or profits of these assets become property of the estate. This is applicable even if the debtor continues to lawfully reside on and use the property.

If you are swimming in debt, bankruptcy may be right for you. Bankruptcy provides a fresh start for those suffering under financial difficulty. Contact the bankruptcy law firm of Melanie Tavare, a Bay Area bankruptcy attorney.