It’s a simple question that arose recently when I wrote about perks, miles, gift certificates, and other non-fungible currencies that everyday Americans receive from corporate retailers. The question was whether those benefits could be taken by the trustee in bankruptcy. Aside from the practical issue of the restrictions the issuers place on them, the answer was no. The reason was that they weren’t assets. So, what is an “asset”?
Surprisingly, the answer to this crucial question is not to be found in the definitions section of the Bankruptcy Code; nor, for that matter, are the terms “property” or “estate.” Rather, the answer is to be found in Section 541, which is titled, “Property of the Estate.”
This section doesn’t define the estate; it simply wills it into being upon the commencement of a bankruptcy case. However, it does specify what property comprises the estate, “wherever located and by whomever held.” Here’s a quick rundown:
- All the debtor’s property, specifically when the debtor has “legal title” and “equitable title.” This means the debtor has control over the property along with the legal right to use it. Sometimes debtors have one but not the other. Importantly, this is property that the debtor has at the time the case is filed, not anything acquired after.
- Some types of “community property” in states that allow community property in marriages, so not New York. For such states, if the debtor has sole control over the community property or it’s somehow liable for a creditor’s claim against it then it can be included in the estate.
- Some interests in property that the trustee recovers, like property that has been wrongly transferred to another party or that belongs to a general partnership, for example. This is a fairly broad category.
- Interests in property that are preserved for the estate or ordered to be transferred to it.
- Property received through inheritance or will, covered here.
- Unearned incomes from property, like rents, proceeds, or offspring.
- All assets the estate acquires after the bankruptcy is filed.
While the above definition is fairly broad, the code is much narrower when it addresses what is not the property of the estate.
- Powers the debtor may exercise for another’s benefit.
- Expired nonresidential leases.
- Eligibility to participate in certain Higher Education Act programs, like Pell grants.
- Certain interests in hydrocarbons that have been transferred to another party. This would be like an oil and gas lease.
- Retirement accounts.
- College savings plans.
- Employer withholdings that are contributed to accounts for the debtor, e.g. retirement accounts or health insurance.
- Property the debtor has pawned.
- Proceeds from money orders the debtor has sold.
- Funds placed into an ABLE program.
This definition covers nearly all situations debtors find themselves in, so it’s rare for there to be a question as to whether something is an asset. More likely, the trustee will challenge an asset based on the debtor’s control over it.
Regardless of what kind or how many assets you may own, consulting with an experienced New York bankruptcy lawyer will help make your case go more smoothly.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced New York bankruptcy attorney Bruce Weiner for a free initial consultation.
