Chapter 27 - § 27.1 • THE BANKRUPTCY ESTATE

• Jurisdiction: Colorado

§ 27.1 • THE BANKRUPTCY ESTATE

§ 27.1.1—In General

A bankruptcy case is commenced by the filing of a petition.¹ The commencement of a bankruptcy case creates an estate.² The commencement of a joint case creates two estates.³ The filing of a bankruptcy petition operates as a levy on all property of the bankrupt for the benefit of the estate, and has the effect of a levy by a judgment lien creditor.⁴ Prior to the enactment of the 2006 joint tenancy act, the filing of a petition in bankruptcy effected a severance of a joint tenancy the debtor may have had.⁵ Thereafter, the filing of a petition in bankruptcy did not sever a joint tenancy.⁶

A debtor in possession under Chapter 11 or 13 has essentially the rights, powers, and duties of a trustee.⁷

§ 27.1.2—Property of the Estate

State law determines the nature, extent, and effect of the debtor's (and therefore the estate's) interest in property.⁸

The estate is comprised of the following property, wherever located and by whomever held:⁹

• With certain exceptions, all legal and equitable interests of the debtor in property as of the commencement of the case.¹⁰ Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.¹¹ Property of a corporation wholly owned by the debtor becomes property of the estate;¹²
• Any interest in property that the trustee recovers under 11 U.S.C. § 329(b) (return of excessive attorney fees); § 363(n) (amounts recovered in avoiding sale); § 543 (turnover of property by custodian); § 550 (recovery of avoided transfer); § 553 (setoff); or § 723 (recovery from general partner);¹³
• Any interest in property preserved for the benefit of or ordered transferred to the estate under § 510(c) (equitable subordination) or § 551 (avoided transfer);¹⁴
• Certain interests that the debtor acquired or becomes entitled to acquire within 180 days after the date of filing the petition,¹⁵ including property acquired by bequest, devise, or inheritance;¹⁶
• Proceeds, product, offspring, rents, or profits of or from property of the estate (except earnings for services performed by an individual debtor);¹⁷ and
• Any interest in property that the estate acquires after the commencement of the case.¹⁸ Property acquired by a debtor after the commencement of the case is not property of the estate.¹⁹

Except in the case of a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under nonbankruptcy law, an interest of the debtor becomes property of the estate notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law that restricts or conditions transfer of such interest by the debtor, or that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under the Bankruptcy Act, or on the appointment or taking possession by a trustee in bankruptcy or a custodian before such commencement, and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor's interest in the property.²⁰

Property of the estate does not include:²¹

• Any power that the debtor may exercise solely for the benefit of another entity;
• Any interest of the debtor as a lessee under a lease of nonresidential property that has terminated at the expiration of the stated term before the commencement of the case. Any interest of the debtor as a lessee under a lease of nonresidential property that has terminated at the expiration of the stated term during the case ceases to be included as property of the estate;
• Certain rights relating to education eligibility, accreditation, or licensure;
• Any interest of the debtor in liquid or gaseous hydrocarbons to the extent that (1) the debtor has transferred or agreed to transfer such interest pursuant to a farmout agreement or any written agreement directly related to a farmout agreement, and the estate could otherwise include such interest only by virtue of 11 U.S.C. § 365 (executory contracts and unexpired leases) or § 544(a)(3) (transfers voidable by bona fide purchaser); or (2) the debtor has transferred such interest pursuant to a written conveyance of a production payment to an entity that does not participate in the operation of the property from which the production payment is transferred, and the estate could otherwise include the interest only by virtue of 11 U.S.C. § 365 (executory contracts and unexpired leases) or § 542 (turnover).

The trustee takes only such title or interest as the debtor had at the time of the filing of the petition,²² subject to all valid claims, liens, and equities, the validity of which is to be determined, in the absence of federal law, by the local law as evidenced by the decisions of the state courts. Equities of third persons in respect to the property of the debtor are accordingly not impaired by the adjudication and appointment of the trustee.²³ Property held by the debtor subject to a constructive trust does not become a part of the bankruptcy estate.²⁴ Nevertheless, the trustee may exercise the rights of a hypothetical creditor under the "strongarm" statute; he may take his choice of the debtor's title or the creditor's title, if he is in a position to assert either.²⁵

Where partnership funds were used to purchase real property, the real property is presumed to be partnership property, unless a contrary intention appears; merely listing title in the names of the partners does not rebut the presumption.²⁶

Exemptions

Exemption rights are determined as of the time of the filing of the petition in bankruptcy.²⁷ Nevertheless, a debtor can claim an exemption for property acquired after the commencement of the case if the criteria for exemption are met.²⁸

The states may, by statute, determine whether federal exemptions will apply as an alternative to state exemptions in bankruptcy cases. In this regard, C.R.S. § 13-54-107 provides:

The exemptions provided in section 522(d) of the federal bankruptcy code of 1978 (Title 11 of the United States Code), as amended, are denied to residents of this state. Exemptions authorized to be claimed by residents of this state shall be limited to those expressly provided by the statutes of this state.

This "opt-out" statute has been upheld as against claims that it violates the uniformity requirement of Article I, § 8 and the supremacy clause of Article VI, clause 2, of the United States Constitution.²⁹

Since Colorado has "opted out," a debtor may not take advantage of the exemptions provided for under 11 U.S.C. § 522(d).³⁰ The "opt out" statute does not deny to residents of the state of Colorado the federal nonbankruptcy exemptions referred to in § 522(b)(2)(A).³¹ The Colorado exemptions are the homestead exemption³² and other specific statutory exemptions.³³

Whether a valid homestead exists depends on Colorado law.³⁴ In order to claim a homestead, the debtor must be residing on the property and using it as a residence at the time the petition is filed.³⁵ An intention to move in the immediate future does not disqualify the owner's homestead rights in the property,³⁶ nor does a temporary absence during renovations.³⁷ The desertion of a husband by his wife without cause does not deprive him of his right of homestead if he continues to occupy the premises as such.³⁸

Proceeds from the sale of a homestead are exempt. C.R.S. § 38-41-207 provides, in part:

The proceeds from the exempt amount under this part 2,³⁹ in the event the

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