Post-petition Claims and the Automatic Stay in Chapter 13

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Feb 2000

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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.<a href="#1" name="1a">1</a> In a
chapter 13 proceeding, the debtor remains in possession of all property of the estate.<a href="#2" name="2a">2</a>

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.<a href="#3" name="3a">3</a> The trustee is representative of the estate and
has the capacity to sue and be sued.<a href="#4" name="4a">4</a> 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,<a href="#5" name="5a">5</a>
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.<a href="#6" name="6a">6</a>

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.<a href="#7" name="7a">7</a> 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.<a href="#8" name="8a">8</a>

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 <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Oliver, 193 B.R. 992 (Bankr. N.D. Ga. 1996)</a>, and

<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Petruccelli, 113 B.R. 5 (Bankr. S.D. Cal. 1990)</a>, 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 <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Bank of Marshalltown v. Neiman, 1 F.3d. 687
(8th Cir. 1993)</a>, 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 <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Leavell, 190 B.R. 536 (Bankr. E.D. Va. 1995)</a>, and
<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Ziegler, 136 B.R. 497 (Bankr. N.D. Ill. 1992)</a>, 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 <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Holden, 236 B.R. 156 (Bankr. Vt. 1999)</a>,
and <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Rangel, 233 B.R. 191 (Bankr. Mass. 1999)</a>, 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. <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… of Roper, 203 B.R. 326 (Bankr. N.D. Ala. 1996)</a> and <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Derr, 37 B.R. 33
(Bankr. D. Minn. 1983)</a>. 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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<h3>Footnotes</h3>

<a name="1">1</a> §1306(a). <a href="#1a">Return to article</a>

<a name="2">2</a> §1306(b). <a href="#2a">Return to article</a>

<a name="3">3</a> §1327(b). <a href="#3a">Return to article</a>

<a name="4">4</a> §323. <a href="#4a">Return to article</a>

<a name="5">5</a> §1302(b). <a href="#5a">Return to article</a>

<a name="6">6</a> §1303. <a href="#6a">Return to article</a>

<a name="7">7</a> §362(a)(1)-(7). <a href="#7a">Return to article</a>

<a name="8">8</a> §362(c). <a href="#8a">Return to article</a>

Journal Authors

Thomas E. Ray

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