Property of the estate for Chapter 13 purposes encompasses property interests of the debtor during the pendency of the entire Chapter 13 case, as well as property rights acquired by the Chapter 13 estate after the commencement of the case. Accordingly, property of the estate includes property acquired by the debtor during the case. The right to remain in possession of all property of the estate is a major advantage of Chapter 13 debtors who would be required to turn over nonexempt property to the trustee in a Chapter 7 case.

Chapter 13's Inclusion of Postpetition Property Acquired by the Debtor

The filing of a petition commences a case under Chapter 13. The commencement of a Chapter 13 case creates an estate. The property of the estate includes all of the kinds of property acquired by the debtor during the pendency of the Chapter 13 case, in addition to all such property interests of the debtor at the date of the commencement of the case. Property of the estate for purposes of Chapter 13 also includes earnings from services of the debtor performed while the Chapter 13 case is pending.

Effect of Dismissal on Estate Property

When a Chapter 13 case is dismissed, any property acquired by the debtor thereafter never becomes estate property, because the property coming into the estate is limited to property and earnings acquired before the case is closed, dismissed, or converted to a case under Chapter 7, 11 or 12. In addition, all property of the estate revests in the entity in which such property was vested immediately before the commencement of the case. Upon dismissal of a Chapter 13 case, a Chapter 13 trustee must return all funds to the debtor.

Effect of Plan Confirmation on Estate Property

The confirmation of a plan vests all of the property of the estate in the debtor. If the plan, or order confirming the plan, provides that some or all property of the estate does not vest until the closing of the case or some other later date, all such property remains property of the estate until that date.

Possession of Property of the Chapter 13 Estate

Chapter 13 requires the debtor to remain in possession of all property of the estate, except as otherwise provided by the confirmed plan or the order confirming the plan. The confirmation of a plan vests all property of the estate in the debtor, unless otherwise provided by the plan or by the order confirming the plan. These provisions implement the design of Chapter 13 as a debt repayment proceeding normally funded primarily from the future earnings or income of the debtor.

The Chapter 13 plan may provide for payment of all or part of a claim from property of the estate. There is no express proscription against a provision in a Chapter 13 plan calling for the payment of all claims through the sale or transfer of property of the estate, though liquidating plans are the exception. The debtor is to continue in possession and ownership of all property of the estate, unless otherwise provided by the debtor under the confirmed plan or by the court in the order of confirmation.

It is improper for financial institutions to interfere with the debtor's control over property of the estate by freezing accounts or by sending deposited funds to the trustee. Similarly, a credit union may not retain possession of payroll deductions taken after the Chapter 13 petition was filed, even if they were received before notice of the petition, because the debtor is to remain in possession of property of the estate. In addition, the debtor is to retain control of causes of action that are property of the estate.

Property of the Estate in a Case Converted to Chapter 7

The Bankruptcy Reform Act of 1994 added a new subsection to clarify the issue of whether the expanded definition of property of the estate has any applicability if a case is converted from Chapter 13 to Chapter 7. Property the debtor acquired during the Chapter 13 case would not become property of the estate in the Chapter 7 case after conversion. The only exception to this rule is when the court finds that the case was converted to Chapter 7 in bad faith, in which event the property of the estate in the converted case is the property the debtor had on the date of conversion.

Copyright 2006 LexisNexis, a division of Reed Elsevier Inc.