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Debtor's Estate in Bankruptcy

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What Is a Debtor's Estate?

A debtor’s estate is the property that creditors can take while the debtor is in bankruptcy. The debtor’s estate is extremely large: it includes all of the debtor’s equitable and legal interests in property before the debtor petitioned for bankruptcy. This includes community property that the debtor shares with a spouse.

The debtor’s estate is important because it controls what property creditors can and cannot collect from the debtor.

What Is Not in the Debtor’s Estate?

The Bankruptcy Code explicitly excludes trusts and ERISA pensions from the estate. Child education funds are also excluded from the estate. Property that the debtor obtains post bankruptcy petition are not included.

This means that creditors cannot collect these items because they are not part of the bankruptcy pot available to creditors.

Does Everything in the Debtor’s Estate Belongs to Creditors?

No. First, the debtor’s estate doesn’t count any bankruptcy exemptions. The property might be in the estate, but the property could still be exempt from credit collection by other laws.

Second, if the debtor only has legal title to the property, but no equitable interest, then the property is worthless to creditors.

For example, if the debtor rents an apartment, then the lease would be part of the debtor’s estate. However, since the debtor doesn’t own the apartment (the landlord does), the creditors would ignore the lease because the lease has no monetary value to them.

Does the Debtor Get to Keep All Post-Petition Property?

No. To ensure that the debtor doesn’t try to defraud the system, there are several exceptions:

  • Future income (Chapter 11 and Chapter 13 bankruptcy only)
  • Inheritance
  • Income, proceeds, or profits from pre-petition property
  • Marital property settlements from pre-petition divorce
  • Tax refunds from pre-petition years

Do I Need a Bankruptcy Lawyer?

Filing for bankruptcy is a very complicated process. Bankruptcy law varies depending on where the action is filed and which chapter of bankruptcy is being pursued. A bankruptcy lawyer can help you keep or collect property which legally belongs to you.

Photo of page author Jason Cheung

, LegalMatch Legal Writer

Last Modified: 05-23-2014 03:17 PM PDT

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