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Tom Scott & Associates, P.C.
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We recently had three meetings with creditors, all of them about “No Asset” cases, which means the court did not want any of the debtors' property. Most Chapter 7 cases are called No Asset cases and they are basically in effect from the day you file the case.

In Chapter 13, you have two conflicting statutes, so the bankruptcy code isn't consistent about what constitutes the property of an estate. One provision of the bankruptcy code is called Property of the Estate, sec. 1306, which says, property of the estate for Chapter 7 includes (in addition to everything stated in sec. 541) any property owned on the date the bankruptcy is filed. If you hit the lottery a week after filing, the court cannot collect it.

In a Chapter 13, the law says that not only does it include sec. 541 properties, it also includes all property the debtor acquires after the case is filed, but before the case is closed, dismissed, or converted to another section.

The conflict is that there is another provision, sec. 1327, which states “effective confirmation.” So when you file a Chapter 13, you file a plan for paying everybody back, which you want the court to approve. It is called “confirmation” when the court has approved your plan. Therefore, sec. 1327 is called “Effect of Confirmation,” and it states that except as otherwise provided in the plan, the confirmation of the plan vests all of the property of the estate back to the debtor.

Therefore, upon confirmation, all of the property of the estate ceases to exist, because it all goes back to the debtor. But how can that be possible when Chapter 13 states that property of the estate includes everything that the debtor acquires from the time the case is opened until the time the case is closed, but sec. 1327 states that upon confirmation, the property of the estate ceases to exist and everything goes back to the debtor.

There are two conflicting statutes. One states everything you get through the whole 60 months of bankruptcy belongs to the court, as property of the bankruptcy estate, while the other statute states that if the court confirms your plan in month three or month four, which is probably when you would get confirmation, all the property of the estate belongs to the debtor. So what happens if the case is confirmed and two months later you hit the lottery? Is that property of the estate or not?

In Chapter7, it is easy to determine, because there is only one section, 541, which states property of the estate is determined the day you file your case. Chapter 13 states that everything you have on the day you file the case AND everything you get later on, until your case is closed or converted, is property of the estate. But sec. 327 indicates that once your case is confirmed, all the property of the estate belongs to the debtor.

Various test cases have come up with different conclusions in different districts. One court might say something like, “We don't care about 1327, because 1306 says 'everything,' so everything you get, even if you inherit a house, becomes property of the estate.” Other courts might say something like, “Well, 1327 says the estate ceases to exist, so we go with that. Everything is property of the estate until the case is confirmed, and then there is no property in the estate. Or, the property goes into the estate and then immediately reverts back to the debtor.”

The bottom line is that every conceivable interest and future interest of the debtor (e.g., a tax refund) are non-possessory, which means you as the debtor do not currently have them. All of them need to be listed. Any claim you may have against anyone else, for whatever reason (contingent, speculative, derivative) must be listed, whether or not you think it has value or is collectible.
Examples of types of assets that need to be listed, so the trustee can determine whether or not to pursue any further action, include potential medical malpractice claims; potential lawsuits based on previous incidents like a fist-fight or a car crash; past-due rent you know is not collectable (if you are a landlord); an illegal threatening phone call from a creditor's collection agency; and a cash loan you made to a relative a decade ago that you never expected to be paid back.

In most cases - here is where we try to build your good reputation with the court - we will list everything possible, no matter how small or speculative, so that the trustee will say something like, “Thanks for listing all that stuff, but I'm not interested in that.” The trustee knows we have conferred with our clients and are listing every contingent and speculative property the debtor may have. The trustee assumes that if we are going to list all of that crazy stuff, we are going to list the important stuff.

In summary, upon filing a bankruptcy under sec. 541, everything in the world you own, or are entitled to receive, belongs to and is under the control of the bankruptcy court until the court abandons that property and gives it back to you. The job of a good bankruptcy attorney is to conduct due diligence through extensive conversations with the client, to provide advice on what needs to be listed as potential property.

Additional details and examples about this subject are available in a recent article we posted entitled “Cause of Action Assets Must Be Disclosed Whether Property of Estate or Debtor” (

For more information, visit or call (317) 255-9915.

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Sometimes Bad Things Happen to Good People.

No one particular class of people file for bankruptcy. We file for every race, age group, socioeconomic class, and sexual orientation. We file for literate and illiterate individuals, even people with PhDs. We file for people from 20 to 80 years old (or more).

Serious financial problems can happen to anybody, from the single mom who loses her second job, to the divorced dad with steep alimony and child-support payments, to the once-wealthy individual who took a hit in the stock market.

Many people believe that they are a failure if they file bankruptcy. Our goal is to help these types of people to at least acquire top-of-mind awareness that they are not alone and that bankruptcy is confidential. Our social and economic system creates many types of traps that all types of people get caught in:

We easily receive loans or lines of credit we can't afford

We are able to buy a house we can't afford

We end up in a costly divorce and/or custody battle

We buy stupid things because everyone else does

We make stupid payments because we don't understand the ramifications or know available options

We are out of work for long periods of time because the economy tanks or the marketplace shifts

We have unexpected medical bills because life is precarious

Etc., etc., etc.

Despite the likelihood that 95% of all people will probably fall into one of these categories at one time or another, most people believe that bankruptcy only happens to “other” types of people. It is generally human nature that when you see something happening to someone else, you attribute it to internal characteristics, but you attribute what happens to you to external characteristics.

Here arer two examples that illustrate that point:
Somebody trips on a crack in the sidewalk... your first thought observing that party is that they're clumsy (internal), but the thought of the person who tripped is that there was a crack: “I'm not a clumsy person, it's something that happens” (external.) In this case, usually they are right.

Someone leaves a poor tip at a restaurant... we as observers would probably attribute that as an internal characteristic, though it is probably not. External factors, such as poor service, bad food, or restaurant cleanliness could be contributing factors in many instances.

We, as humans, have a tendency to define people by things that happen to them, despite that being an unfair assessment and generally not the case. We prefer to advise people to be careful when they observe and categorize “other” types of people, because bankruptcy does not define a person. Bankruptcy only defines external factors that have happened to people, which cause them to be in that financial situation. Filing for bankruptcy doesn't make you good; it doesn't make you bad; it is just something that happened.

A vast majority of our clients are hard-working Hoosiers who have waited way too long to make a decisive decision. These people are doing everything they can do to try and make their finances work, to the point of causing themselves more pain later on - whether its an eventual divorce, high blood pressure, a heart attack, or undue stress that feeds upon itself and makes it worse.

For example, I've had clients who were under so much stress from debt that they're not paying attention to doing their job properly at work, so they lose their job, which only makes that little or big problem an even bigger problem.

The parting message we want to convey to people in financial trouble is this: Sometimes bad things happen to good people. You've worked hard your whole life and you've tried to do everything you can to prepare for the future, but something unexpected and difficult has happened. Don't wait to take bold steps to improve your financial situation, because waiting can cause the situation to become even worse and harder to solve.

For more information, visit or call (317) 786-6113.
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