In Bankruptcy Information, Bankruptcy News

When filing bankruptcy, there are a number of schedules that have to be prepared. These disclose assets (Schedules A and B), debts (schedules D, E and F) and income and expenses (Schedules I and J), among other things. These schedules form the basis for what property the trustee might be entitled to. They are often referred to as a snapshot of the debtor’s financial situation as of the date of the filing.

Bankruptcies take some time to work their way through the system. What happens if assets increase in value between the time of filing and the time the case is closed? Can the trustee take assets that had no net value at the time of filing but might have increased in value at the end of the case? A court in Kentucky answered that question on July 28, 2017. The case involved a debtor who had pledged his house as collateral for a business loan. At the time of his bankruptcy filing, the total of the first mortgage and the business mortgage left him with no equity in the house. However, before the case closed, the business made substantial payments on the business debt, paying the balance down from $275,000 to about $50,000. The trustee claimed that he should be allowed to sell the house, pay off the two mortgages and use the balance for the bankruptcy estate.

The bankruptcy court disagreed, holding that the snapshot rule controls. Whatever the value of the house and mortgages was at the time the debtor filed controls. Anything that happens post-petition belongs to the debtor. The snapshot rule provides a bright line of demarcation between what is available to the trustee and what belongs to the debtor.

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