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Section 541 Property of the estate (Judge Gargotta)

In re Castillo (March 27, 2014)

Issue(s): Whether property of the estate under § 541(a)(5) excludes interest that were inherited after the first 180 days of the Debtors’ Chapter 13 petition was filed. Whether the Debtors had a duty to disclose the inherited interests under Rule 1007(h). Whether the Trustee has met his burden to show that the conversion from a Chapter 13 to a Chapter 7 was based on the Debtor’s bad faith under § 348(f)(2).

Holding(s): Inherited interests received after the first 180 days after a Chapter 13 petition is filed are property of the Chapter 13 estate per § 1306(a)(1) which states that property of the estate is comprised of the property specified in § 541, and includes “all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed.” The Court noted that the majority of cases conclude that § 1306(a) was intended to increase, not limit, the scope of the estate. The Debtors, however, did not have a duty to disclose the inheritance as Rule 1007(h) is limited to property of the estate defined under § 541(a)(5), not § 1306(a). Because 1007(h) does not require disclosure of the inherited fractional interest in the home, Debtors argued that there can be not bad faith under § 348(a)(2). The law in the Fifth Circuit, however, has consistently held that a debtor has a continuing obligation to disclose post-petition claims, cause of action, and assets. The Court therefore, reviewed whether the Trustee had met his burden to show that conversion itself was based on the Debtors’ bad faith. The Court adopted the Mullican Test (Moser v. Mullican (In re Mullican), 417 B.R. 389 (Bankr. E.D. Tex. 2008), aff’d, 417 B.R. 408 (E.D. Tex. 2009)) for application of § 348(a)(2) and found, based on the totality of circumstances, the Trustee had not met his burden in establishing bad faith.

In re Boulder Crossroads (December 1, 2010)
Issue: (1) Whether Creditor (a Nevada law firm) should be disallowed its fees for failure to provide Debtor Boulder Crossroads with reasonable value; (2) whether Creditor’s fees should be disallowed due to alleged conflicts of interest; and (3) whether the application of a deposit paid by Debtor to outstanding attorney’s fees was a violation of the automatic stay?
Holding: (1) The reasonable value should be analyzed under both the state’s rules of professional conduct (if applicable) and a federal reasonableness scrutiny. The attorney bears the burden of establishing the reasonableness of their fees in this case. The Court finds that creditor has met its burden to prove that its’ fees are reasonable under Nevada and federal standards. (2) The Court finds there was no conflict of interest to warrant a disgorgement or disallowance of Creditor’s fees. (3) Portions of a retainer earned prepetition are not property of the estate. Therefore, the application of the retainer to outstanding debt was not a violation of the automatic stay. Debtor’s Objection to Claim of Creditor is DENIED.

In re Arredondo-Smith (July 22, 2010)
Issue: Whether the Debtor, who, under the choice-of-law provision of section 522(b)(3)(A) and Cal. Civ. Proc. Code § 704.710-730, may apply California homestead exemption law extraterritorially to property located in Austin, Texas?
Holding: California exemption law may apply extraterritorially to property located in the State of Texas, but because Debtor had declared “homestead” in California she may not now abandon such, and claim a homestead different than the family homestead that she and her former spouse previously established.

Douglass v. Langhennig (March 9, 2009)
Issue: Whether Plaintiff’s payment of $75,000 as a down payment for the purchase of a home by both Plaintiff and Debtor/Defendant was in the form of a gift and thus should be paid to her as her separate property out of the home sales proceeds or whether the home sales proceeds are burdened with a constructive trust or equitable lien in favor of Plaintiff to the extent of $75,000.
Holding: The Court finds that the $75,000 payment was a gift, and Plaintiff is not entitled to be paid $75,000 out of the sales proceeds.

Douglas v. Langehennig (Jul. 28, 2008)
Issue: The Plaintiff alleges three causes of action: (1) for a judgment declaring that at least a portion of the proceeds of the sale of the Home is her separate property; (2) for the imposition of a constructive trust on at least a portion of the proceeds of the sale of the Home; and (3) for a judgment declaring that she had a homestead interest in the Home and is therefore entitled to proceeds of its sale to the extent of the value of that interest.
Holding: The Court finds that the Trustee’s Motion to Dismiss should be denied with respect to the Plaintiff’s claims to declare all or a portion of the Home’s proceeds as her separate property and to impose a constructive trust on those proceeds. With respect to the Plaintiff’s claim based on her assertion of a state law homestead interest in the Home, the Court finds that the Motion to Dismiss should be granted, and this claim should be dismissed.