By: Craig Kavanagh
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
Recently, the New Jersey Bankruptcy Court, in In re Bursztyn,[1] held that Fourth Amendment limitations applied to a trustee’s conduct in seeking to search a debtor’s residence with the intention of seizing undisclosed assets.  However, the Court reasoned that, by filing bankruptcy, the debtor had reduced her reasonable expectations of privacy[2] and the Court held that the trustee’s actions did not exceed the Fourth Amendment standards of reasonableness.[3] In Bursztyn, based on an investigation of court records of the debtor's recent divorce, the trustee suspected that the debtor was hiding valuable jewelry and artwork that was not listed in the debtor’s bankruptcy petition or financial affairs statements.[4] The trustee requested from the Court, ex parte, an order allowing her to search the debtor’s home with the hopes of obtaining the art and jewelry that now belonged to the estate.[5] The Court granted authorization, and the United States Marshals Service and the trustee served the order upon the debtor at her residence, and proceeded to search her bedroom and closets.[6] The search uncovered nearly two hundred pieces of fine jewelry and ten works of art, valued at nearly $250,000.[7] Claiming that the search and seizure violated her Fourth Amendment rights, the debtor sought to suppress all evidence uncovered by the trustee’s search.[8]

By: Deanna Scorzelli
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In a novel approach, the Court uses the § 362(b)(11)[1] exception from the automatic stay to insulate a consumer debtor from the trustee’s attempt to require her to “turnover” the amounts reflected by pre-petition checks and debits that were paid by her bank shortly after filing bankruptcy and thus were no longer in the account at the time it was remitted to the estate. In In re Minter-Higgins[2] the Chapter 7 Trustee sought turnover from the debtor of money that had been in the debtor’s bank account at the instant of filing for bankruptcy. The debtor objected to the turnover, however, because she had issued checks and initiated debit transfers before filing for bankruptcy that were not honored by the bank until after the filing.  If the Trustee were successful in obtaining the turnover, the debtor would be liable to the estate for the amount of those items and effectively pay twice – once when the funds in her account were used to honor the check and debit transfers and a second time in response to the turnover. 
 

By: Meagan Mahar
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
Despite conflicting New York case law, the Delaware Bankruptcy Court in In re Atlantic Gulf Comtys. held that funds in an escrow account are not property of the estate even where the funds were deposited by the debtor.[1]  Only the debtor’s contingent right to recover the funds upon satisfying the escrow conditions is considered estate property. [2]

By: Ian Park
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In the first appellate court decision on the issue that favors the debtor, the Sixth Circuit Court of Appeals splits with the Fourth and Eleventh Circuits and holds that the repossession of collateral under UCC Article 9 does not alter the debtor’s property rights or remove the collateral from the estate.[1]  The effect of this ruling is that the debtor may retain the collateral by paying its value to the creditor and is not limited to the state law redemption rights, which require payment in full of the secured obligation. 

By: Timothy Fox
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In Nichols v. Birdsell,[1] the Ninth Circuit held that a taxpayer’s pre-bankruptcy irrevocable election to apply a tax refund as a credit for the following tax year was not a bar to the bankruptcy trustee’s turnover claim under section 542, i.e. the credit was property of the estate.  In Nichols, the debtors filed their 2001 tax return two weeks before filing their Chapter 7 bankruptcy and, pursuant to sections 6402(b) and 6513(d) of the Tax Code, irrevocably elected to apply their anticipated refund to the 2002 tax year. The following year, the debtors used nearly the entirety of the 2001 credit to satisfy their 2002 income tax obligation.  The trustee instituted the suit against the debtors to recover the 2001 overpayment, advancing theories under sections 542(a) and 548(a)(1) of the Bankruptcy Code.[2]  Analogizing the present case to its previous decision in Feiler v. Sims (In re Feiler),[3] the Ninth Circuit rejected debtors’ argument that the irrevocable nature of the election and their resulting inability to access the funds was a bar to the assertion by the trustee that the tax credit was property of the estate.[4]

By: Christine Knoesel
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In an expansive reading of the homestead cap added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the First Circuit Court of Appeals, in Larson v. Howell, held that criminal negligence is sufficient to trigger the cap.[1]  The BAPCPA provision, section 522(q)(1)(B)(iv) of the Bankruptcy Code, applies a $136,875 cap on the homestead exemption where the “debtor owes a debt arising from any . . . criminal act, intentional tort, or willful or reckless misconduct.” [2]  In Larson, the debtor was driving her van in Massachusetts and took a shortcut through a parking lot, striking the oncoming motorcycle of Howell.  Howell’s wife, a passenger, died as a result of the accident.  In the criminal case, the judge found facts sufficient to find Larson guilty of negligent vehicular homicide.[3]  In the bankruptcy proceeding, the Court of Appeals reasoned that use of the word “or” in the section 522(q)(1)(B)(iv) list of triggering acts indicates that criminal acts are separate triggers to the subsection, independent of any intent or recklessness.[4]  The court also determined that the debtor need not be convicted of the crime, holding that section 522(q)(1)(B)(iv) applies “wherever the debtor’s debt arises from . . .  any criminal act.”[5]  Therefore, the provision is triggered whenever one admits to facts sufficient for a finding of guilt, as Larson did.  The court concluded that the cap on the homestead exemption applies to Larson because her act was a crime of negligence and her debt to Howell arose from that criminal act.