Category Archives: Automatic Stay and Revest of Bankruptcy Estate Property in the Debtor

Revesting of Property of the Estate Upon Confirmation of the Chapter 13 Plan and the Automatic Stay

By Ryan C. Wood, Attorney at Law

From time to time a great subject comes up while you are sitting at hearing waiting for your case to be called.  Today was one of those days.  Almost every jurisdiction uses a model chapter 13 plan.  There are a few holdouts like the Santa Rosa Division of the United States Bankruptcy for the Northern District of California.  Usually one of the normal plan provisions is that the debtor elects to have the property of the bankruptcy estate revest in the person who files bankruptcy, the debtor, at the time the chapter 13 plan is confirmed.  Right, why not?  The Chapter 13 Trustee does not want the liability of the property continuing to be in bankruptcy estate.  The debtor should have the right to sell or refinance real and personal property after the chapter 13 plan is confirmed.  It is their property.

What Happens When a Debtor Incurs a Post-Petition Debt Though

Well, the property that revested back to the debtor is now available to a creditor, say the Internal Revenue Service, to try and collect on taxes incurred after the petition for bankruptcy protection was filed.  Why, because there is now no automatic stay as to the property that revests in the debtor.  A recent case in the Ninth Circuit did not help this issue any.  It helped to clarify that the Internal Revenue Service could seek payment of unpaid taxes incurred post-petition.  What happens to the confirmed chapter 13 plan then?  The post-petition collection by the IRS may negatively affect the confirmed chapter 13 plan and possibly make the confirmed plan no longer possible.  This also means a mortgage holder on a home does not have to seek relief from the automatic stay to foreclose on a home once the chapter 13 plan is confirmed too.  If a debtor misses payments after the chapter 13 plan is confirmed the mortgage company technically does not have to obtain the bankruptcy court’s permission to foreclose on the house and enforce their lien.

So What Can Be Done to Protect Those Who File Chapter 13 Bankruptcy?

There are debtors’ attorneys trying to insert language into chapter 13 plans to enjoin all creditors from being able to collect on post-petition debts without the bankruptcy court’s permission.  The issues are whether injunctive relief can be provided for in a chapter 13 plan?  If so, how does the balance of benefit and hardships play out to the debtor and creditor involved?  Is the injunctive relief reasonable based upon the timing involved to seek bankruptcy court permission?  How many days of notice must be given for a hearing?  Or must the creditor only provide the debtor with notice and the right to request a hearing?  Does the bankruptcy code even provide for this type of relief?  These questions will be answered in the next couple of months.  It is doubtful that every judge will allow a provision such as this.  A good place to start is Section 1322(b)(11) and FRBP 7001(7).

For more information about the bankruptcy process contact our Redwood City bankruptcy attorney or San Jose bankruptcy lawyer to schedule a free consultation.  You may reach us toll free at 1-877-963-9543.