Bankruptcy: Debtor's New Estate

The Question Presented
If I file bankruptcy can I keep my cat? That may seem like a strange question, but that was just the situation faced by a debtor in a recent Chapter 7 filing. At the time of the petition the debtor owned a pregnant Persian cat. The cat produced a litter three weeks after the filing. So who owns the cat and who owns the kittens? (Answer to follow)

The Bankruptcy Code
The Bankruptcy Code states that a petition for bankruptcy creates a new legal entity separate and apart from the debtor's prepetition estate. The debtor`s property prior to the date of bankruptcy goes into the bankruptcy estate. In due course, all the prepetition property is liquidated and its proceeds distributed to creditors. At the same time as the bankruptcy estate is created, the individual Ch. 7 debtor begins to accumulate a new estate. This new estate consists of earnings and property acquired after the filing as well as property that has been released to the debtor from the estate as exempt or abandoned by the trustee has having no economic value. These postpetition assets of the debtor are the basis of his or her fresh start. Petition creditors cannot reach them because they are stayed from doing so pending the debtor’s discharge, and are thereafter permanently enjoined from collecting prepetition debts.

So Who Owns the Cat and Kittens?
Although property acquired by a Ch. 7 debtor after the petition is generally part of the debtor’s new estate, the Bankruptcy Code includes certain postpetition receipts in the estate if they have an appropriate connection with prepetition property. The Persian cat became property of the bankruptcy estate upon the debtor’s petition filing. Although the litter was born after the petition, it is property of the bankruptcy estate which includes in the estate all proceeds, product, offspring, rents or profits of or derived from estate property. It should be noted that if the cat or kittens had no economic value the bankruptcy estate would ultimately abandon them to the debtor.

For more bankruptcy information read: Bankruptcy: Automatic Stay, and What is Bankruptcy, Bankruptcy: Fresh Start, Bankruptcy: Student Loans, Bankruptcy: Means Test, Bankruptcy: Income Eligibility, Bankruptcy: New Asset Evaluation, Bankruptcy: Postpetition Income

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