A portion of accrued vacation benefits is property of the estate that a chapter 7 debtor must turn over to the trustee. Likewise, parents can be required to reimburse the trustee for some family expenses they incur and pay before bankruptcy, according to an opinion by District Judge G. Murray Snow of Phoenix, upholding the bankruptcy court.
A month before filing a chapter 7 petition, a husband and wife paid about $3,500 for airfare and tuition for their daughter to attend a ballet course after bankruptcy. Some four months later, the trustee filed a motion to compel the couple to turn over $3,500 plus 25% of their “interest in paid time off,” apparently meaning accrued vacation time.
The bankruptcy court sustained the trustee’s turnover demands, and the couple appealed. Judge Snow upheld the bankruptcy court in a June 8 opinion.
The parents argued that the fair market value of their interest in the ballet course expenses was zero because it could not be liquidated, refunded or transferred.
Judge Snow disagreed. With regard to the prepaid ballet expenses, the opinion relies chiefly on a 2004 decision by an Arizona bankruptcy judge and is otherwise thin on precedent. He reasoned that the bankrupt parents had a “property interest” in the plane tickets and the tuition. He said the bankruptcy judge did not draw a clearly erroneous conclusion that the fair market value of the course was what they paid.
Judge Snow mentioned but did not analyze whether the prepayment of family expenses was a fraudulent transfer.
Likewise, Judge Snow said he agreed with those few courts that directly addressed the issue and held that accrued vacation time is estate property. Again with citation to little authority, he upheld the bankruptcy court by ruling that the debtors must turn over the “non-exempt portion of the pre-petition” vacation-benefit pay “as it is paid out.” The opinion does not explain why 25% is the correct percentage.