Property in a revocable trust is property of the settlor's estate, Bankruptcy Judge Bruce A. Harwood held in the process of sanctioning a creditor almost $30,000 for violating the automatic stay.
Several years before bankruptcy, a man deeded property to a revocable trust and made himself a 25% beneficiary. Before bankruptcy, the holder of a mortgage on the trust's property got a judgment allowing foreclosure but did not complete foreclosure before the former owner/beneficiary filed under chapter 7.
At a time when she was aware of man's bankruptcy, the mortgage holder filed a deed to the trust’s property. The bankruptcy trustee sued for violating the automatic stay and won in Judge Harwood's Dec. 24 opinion.
The mortgage holder argued there was no stay violation because the property was in the trust's name. Sitting in Manchester, New Hampshire, Judge Harwood cited the state's trust law for the proposition that property in a revocable trust is always reachable by the settlor's creditors. In addition, the bankruptcy trustee assumed the power of the settlor to revoke the trust.
Under those circumstances, Judge Harwood decided that the property itself, not just the bankrupt estate’s interest in the trust, was the debtor’s property. Consequently, recording the deed after bankruptcy was a stay violation, he held.
Judge Harwood did not allow the trustee to recover attorneys' fees under Section 362(k) because she did not qualify as an "individual" under that statute. Although some lower courts hold otherwise, he believed Section 362(k) not applicable because the "trustee represents the bankruptcy estate, not herself as an individual."
Because he could utilize Section 105(a) to impose a sanction, Judge Harwood said the unavailability of Section 362(k) did not affect the decision "in any practical way." He saddled the creditor with a sanction of almost $30,000, representing the trustee's reasonable attorneys' fees in the adversary proceeding. He did not assess punitive damages because the creditor was "pro se."