What Happens When a Bankruptcy Case is Filed in East Texas?
When a bankruptcy case is filed in East Texas an estate is created that consists of the property that is defined in Section 541 of Title 11 of the United States Bankruptcy Code.
Of course, the personal property of the estate in a bankruptcy would consist of any property that the Debtor has a legal or equitable interest in at the time the bankruptcy case is filed.
In addition, the estate consists of certain types of property that the Debtor acquires or becomes entitled to acquire within 180 days after the filing of the case.
Section 541(a)(5)(A) provides that three different types of property can become part of the bankruptcy estate:
Property acquired by bequest, devise, or inheritance;
Property acquired as a result of a property settlement agreement with the Debtor’s spouse or a Decree of Divorce; or
Property acquired as a beneficiary of a life insurance policy or of a death benefit plan.
INHERITED PROPERTY AND YOUR BANKRUPTCY
Debtors have to be aware that an inheritance of property within the 180-day period of filing a bankruptcy can have dramatic consequences. Also, the receipt or right to receive life insurance proceeds can have the same consequence.
Property in a Chapter 13 bankruptcy filing is never surrendered to the Trustee. To the extent there is property that is not exempt under the bankruptcy law, then the Debtors are required to pay a dividend to the Chapter 13 Trustee that equals the value of the non-exempt property.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
We are pleased to announce that we now have offices in Jacksonville, Texas and Nacogdoches, Texas (Meetings with a lawyer in Nacogdoches are by appointment only) to serve the needs of our bankruptcy clients in the cities andcommunities of Tyler, Longview, Troup, Whitehouse, Bullard, Flint, Gresham, Kilgore, Henderson, New Summerfield, Palestine, Maydelle, Cuney, Athens, Frankston, Neches, Alto, Wells, Lufkin, Douglas, Nacogdoches, Lufkin, Reklaw, Ponta, Cushing, Sacul, Rusk, Center, San Augustine, Crockett, Tennessee Colony, Elkhart, Grapeland, Timpson, Joaquin, Mt. Enterprise, Shelbyville, Poynor, Brownsboro, Chandler, Coffee City, Chapel Hill, Tenaha, Garrison, Overton, Arp, Trinity, Carthage, Groveton, Hemphill, Livingston and Noonday.
WHERE IS MY EAST TEXAS BANKRUPTCY FILED?
Bankruptcies for residents of the counties of Henderson, Anderson, Smith, Gregg, Cherokee, Rusk and Panola are filed in the Tyler Division of the United States Bankruptcy Court for the Eastern District of Texas. Bankruptcies for residents of the counties of Angelina, Houston, Nacogdoches, Polk, Sabine, San Augustine, Shelby and Trinity are filed in the Lufkin Division of the United States Bankruptcy Court for the Eastern District of Texas.
If you are facing the burden of debt that you cannot manage any longer, then please call for a consultation. I personally meet with all of my clients and I have on numerous occasions met with clients in the comfort and privacy of their own homes.
A decision by Judge Parker out of the Tyler Division of the Eastern District of Texas dealt with the issue of whether or not property distributed to a beneficiary of a trust was property of the bankruptcy estate.
DEBTOR PROTECTION
The case involved a Debtor who received distributions from a trust that was established by his father more than twenty years prior to the Debtor seeking bankruptcy protection.
The Settlor’s of the trust established the same during his lifetime, so the trust was an inter vivos trust. The trust consisted primarily of oil and gas interests.
The Debtor’s father passed away approximately fifteen years prior to the Debtor filing a Chapter 7 bankruptcy case.
The Debtor’s father left a Last Wil and Testament that contained a “pourover” provision, and so additional assets were added to the original trust in accordance with the Settlor’s desire and written mandates of his Last Will & Testament.
One additional fact related to the trust that is important to note is that the trust contained a spendthrift provision, which restricted the beneficiaries ability to alienate either voluntarily or involuntarily the right to receive future payments from the trust.
PROPERTY EXCLUSION
This type of spendthrift provision protects the trust assets from creditors. Section 541(c)(2) of the Bankruptcy Code excludes from property of the estate assets that the Debtor is restricted from transferring a beneficial interest to the extent that the restriction in enforceable under nonbankruptcy law.
The Trustee filed a turnover motion with the Bankruptcy Court after the Debtor received approximately $45,000.00 in distributions from the trust in the 180-day period after filing his bankruptcy case. The trustee argued that because the distributions from the trust consisted of assets from a merged inter vivos and testamentary trust, the character of the distributions should be classified as testamentary in nature and thus defined as “bequests” under Section 541(a)(5)(A) of the Bankruptcy Code.
The Debtor in turn argued that any distributions from the trust were from a valid inter vivos spendthrift trust that protected such from creditors and not a result of any testamentary disposition that could be classified as a bequest, devise or inheritance.
The Bankruptcy Court went through a significant analysis of Texas trust law and concluded that the testamentary additions to the original inter vivos assets did not change their original character. Therefore, any distributions to the Debtor from the trust during the 180-day period could not be properly classified as testamentary in nature, but rather remained inter vivos in nature and did not fall under the control of Section 541(a)(5)(A).
The Court followed prior Fifth Circuit precedent that had previously established that inter vivos distributions are not property interests acquired by “bequest, devise or inheritance.”
The Trustee was not entitled to the trust distributions made during the 180-day post-petition period because they did not qualify as property of the estate under Section 541(a).
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
There are two required counseling sessions that a person must complete before receiving a discharge of their debts under the bankruptcy code.
The first of these counseling sessions must be completed prior to the filing of the bankruptcy case.
This initial counseling session is generally referred to as the “pre-filing counseling” session and is mandated by Section 109(h) of the Bankruptcy Code.
The pre-filing counseling must be completed within 180 days of the filing.
Our firm uses CricketDebt for all of our pre-filing counseling. If you cannot complete the required counseling online, then it can be completed over the phone at 866-719-0400.
The second required counseling session must be completed prior to a Debtor receiving a discharge of their debts by the bankruptcy court.
This counseling session is often referred to as the “pre-discharge debtor education course” or “financial management course.”
Our firm uses Solid Start Financial for this course. If you cannot complete the debtor education online, then it can be completed over the phone at 866-719-0400.
The certificate of completion for the financial management course must be filed with the bankruptcy court within 60 days after the date first set for the meeting of creditors as in a Chapter 7 case, as required by Rule 1007(c) of the Federal Rules of Bankruptcy Procedure.
In a Chapter 13 case the certificate of completion must be filed before the Debtor makes their last payment under their Chapter 13 Plan.
There are two required counseling sessions that must be completed by every Debtor prior to receiving a discharge of their debts.
We often have clients call us advising that they have received a document from the bankruptcy court titled “Notice of Missing Documents to Individual Debtor.”
This notice generally relates to the filing of the certificate of completion for the “pre-discharge” or “financial management” course.
We don’t ever want you to ignore any notice you receive in the mail, but we would ask you to keep in mind the deadlines for filing the certificate.
The certificate of completion for the financial management course must be filed with the bankruptcy court within 60 days after the date first set for the meeting of creditors in a Chapter 7 case, as required by Rule 1007(c) of the Federal Rules of Bankruptcy Procedure.
In a Chapter 13 case the certificate of completion must be filed before the Debtor makes their last payment under their Chapter 13 Plan.
When we correspond with our clients to complete the financial management course we would ask that you complete the course without delay, but please do not panic over the notice received from the bankruptcy court.
Many times these notices are generated prior to the meeting of creditors, so you have a sufficient period of time to complete the course.
PAYING WITH AUTOMATIC DEBITS AFTER FILING FOR BANKRUPTCY
If you have car payments or other payments being made to a secured creditor by way of an automatic debit from a bank account, you will need to make arrangements with the creditor to pay them by other means once you have filed for bankruptcy.
Creditors will not continue auto debits after you have filed for bankruptcy, because to do so would violate the automatic stay that is entered upon filing for bankruptcy protection.
Creditors often will also not accept online payments after you have filed for bankruptcy and will cease sending billing statements.
It is important to contact the creditor by telephone and ascertain from the creditor how you should get payment to them.
Be certain to get a full name of the person you are contacting, and most importantly, make certain that you keep a verifiable proof of any payments that you make to creditors.
In a Chapter 7 bankruptcy filing car creditors will most of the time reinstate auto debits from your bank account after you have signed a Reaffirmation Agreement and/or have been discharged.
