Section 5.21 Actions Affecting Property of the Estate

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

a. (§5.21) Actions Affecting Property of the Estate

The automatic stay also prohibits most actions that affect either property of the bankruptcy estate or property of the debtor. The bankruptcy estate consists of all the debtor’s legal or equitable interests in property as of the commencement of the case. 11 U.S.C. § 541(a). The stay applies to:

· any act to obtain possession of property of the estate or to exercise control over property of the estate, 11 U.S.C. § 362(a)(3);

· “any act to create, perfect, or enforce any lien against property of the estate,” § 362(a)(4); and

· the setoff of any debt owed to the debtor that arose before the commencement of the case against any claim against the debtor, § 362(a)(7).

The automatic stay also restrains any act to create, perfect, or enforce any lien against property of the debtor to the extent that the lien secures a claim that arose before the bankruptcy filing. Section 362(a)(5). But perfection of a statutory lien, such as a mechanic’s lien, is excluded from the scope of § 362(a). Section 362(b)(3); In re Houts, 23 B.R. 705 (Bankr. W.D. Mo. 1982) (Pelofsky, B.J.). The United States Bankruptcy Court for the Western District of Missouri has enacted Local Rule 4001–1.G regarding the filing of notices to preserve mechanics’ liens.

Clearly, whether the subject property is “property of the estate” is critical. Courts have interpreted the phrase broadly. For instance, the property does not need to be in the actual or constructive control of the debtor. The Supreme Court of the United States held in United States v. Whiting Pools, Inc., 462 U.S. 198 (1983), that property seized by a creditor and in its possession but not yet sold before the commencement of the bankruptcy case remains property of the bankruptcy estate. The Court reasoned that the debtor retained a right to redeem the property until its sale by the creditor, and the Court utilized that minimal remaining property interest to require the creditor to return the property to the debtor in accordance with 11 U.S.C. § 542(a).

Similarly, a debtor’s leasehold is property of the estate unless the lease has been completely terminated under state law before the bankruptcy filing. In In re Kroh Brothers Development Co., 91 B.R. 525 (Bankr. W.D. Mo. 1988) (See, B.J.), the court found that because a landlord’s termination procedure was incomplete, the debtor retained an interest on the leasehold at the time of filing and was entitled to restoration of possession...