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TITLE 11–BANKRUPTCY

CHAPTER 5–CREDITORS, THE DEBTOR, AND THE ESTATE

Sub Chapter III – The Estate

Sec. 541. Property of the estate

   (a) The commencement of a case under section 301, 302, or 303 of 
this title creates an estate. Such estate is comprised of all the 
following property, wherever located and by whomever held:
        (1) Except as provided in subsections (b) and (c)(2) of this 
    section, all legal or equitable interests of the debtor in property 
    as of the commencement of the case.
        (2) All interests of the debtor and the debtor's spouse in 
    community property as of the commencement of the case that is--
            (A) under the sole, equal, or joint management and control 
        of the debtor; or
            (B) liable for an allowable claim against the debtor, or for 
        both an allowable claim against the debtor and an allowable 
        claim against the debtor's spouse, to the extent that such 
        interest is so liable.

        (3) Any interest in property that the trustee recovers under 
    section 329(b), 363(n), 543, 550, 553, or 723 of this title.
        (4) Any interest in property preserved for the benefit of or 
    ordered transferred to the estate under section 510(c) or 551 of 
    this title.
        (5) Any interest in property that would have been property of 
    the estate if such interest had been an interest of the debtor on 
    the date of the filing of the petition, and that the debtor acquires 
    or becomes entitled to acquire within 180 days after such date--
            (A) by bequest, devise, or inheritance;
            (B) as a result of a property settlement agreement with the 
        debtor's spouse, or of an interlocutory or final divorce decree; 
        or
            (C) as a beneficiary of a life insurance policy or of a 
        death benefit plan.

        (6) Proceeds, product, offspring, rents, or profits of or from 
    property of the estate, except such as are earnings from services 
    performed by an individual debtor after the commencement of the 
    case.
        (7) Any interest in property that the estate acquires after the 
    commencement of the case.

    (b) Property of the estate does not include--
        (1) any power that the debtor may exercise solely for the 
    benefit of an entity other than the debtor;
        (2) any interest of the debtor as a lessee under a lease of 
    nonresidential real property that has terminated at the expiration 
    of the stated term of such lease before the commencement of the case 
    under this title, and ceases to include any interest of the debtor 
    as a lessee under a lease of nonresidential real property that has 
    terminated at the expiration of the stated term of such lease during 
    the case;
        (3) any eligibility of the debtor to participate in programs 
    authorized under the Higher Education Act of 1965 (20 U.S.C. 1001 et 
    seq.; 42 U.S.C. 2751 et seq.), or any accreditation status or State 
    licensure of the debtor as an educational institution;
        (4) any interest of the debtor in liquid or gaseous hydrocarbons 
    to the extent that--
            (A)(i) the debtor has transferred or has agreed to transfer 
        such interest pursuant to a farmout agreement or any written 
        agreement directly related to a farmout agreement; and
            (ii) but for the operation of this paragraph, the estate 
        could include the interest referred to in clause (i) only by 
        virtue of section 365 or 544(a)(3) of this title; or
            (B)(i) 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 
        such production payment is transferred; and
            (ii) but for the operation of this paragraph, the estate 
        could include the interest referred to in clause (i) only by 
        virtue of section 542 of this title; or

        (5) any interest in cash or cash equivalents that constitute 
    proceeds of a sale by the debtor of a money order that is made--
            (A) on or after the date that is 14 days prior to the date 
        on which the petition is filed; and
            (B) under an agreement with a money order issuer that 
        prohibits the commingling of such proceeds with property of the 
        debtor (notwithstanding that, contrary to the agreement, the 
        proceeds may have been commingled with property of the debtor),

    unless the money order issuer had not taken action, prior to the 
    filing of the petition, to require compliance with the prohibition.

Paragraph (4) shall not be construed to exclude from the estate any 
consideration the debtor retains, receives, or is entitled to receive 
for transferring an interest in liquid or gaseous hydrocarbons pursuant 
to a farmout agreement.
    (c)(1) Except as provided in paragraph (2) of this subsection, an 
interest of the debtor in property becomes property of the estate under 
subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any 
provision in an agreement, transfer instrument, or applicable 
nonbankruptcy law--
        (A) that restricts or conditions transfer of such interest by 
    the debtor; or
        (B) that is conditioned on the insolvency or financial condition 
    of the debtor, on the commencement of a case under this title, or on 
    the appointment of or taking possession by a trustee in a case under 
    this title 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 property.

    (2) A restriction on the transfer of a beneficial interest of the 
debtor in a trust that is enforceable under applicable nonbankruptcy law 
is enforceable in a case under this title.
    (d) 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 under subsection (a)(1) or (2) of this section 
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.

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2594; Pub. L. 98-353, title III, 
Secs. 363(a), 456, July 10, 1984, 98 Stat. 363, 376; Pub. L. 101-508, 
title III, Sec. 3007(a)(2), Nov. 5, 1990, 104 Stat. 1388-28; Pub. L. 
102-486, title XXX, Sec. 3017(b), Oct. 24, 1992, 106 Stat. 3130; Pub. L. 
103-394, title II, Secs. 208(b), 223, Oct. 22, 1994, 108 Stat. 4124, 
4129.)


                      Historical and Revision Notes

                         legislative statements

    Section 541(a)(7) is new. The provision clarifies that any interest 
in property that the estate acquires after the commencement of the case 
is property of the estate; for example, if the estate enters into a 
contract, after the commencement of the case, such a contract would be 
property of the estate. The addition of this provision by the House 
amendment merely clarifies that section 541(a) is an all-embracing 
definition which includes charges on property, such as liens held by the 
debtor on property of a third party, or beneficial rights and interests 
that the debtor may have in property of another. However, only the 
debtor's interest in such property becomes property of the estate. If 
the debtor holds bare legal title or holds property in trust for 
another, only those rights which the debtor would have otherwise had 
emanating from such interest pass to the estate under section 541. 
Neither this section nor section 545 will affect various statutory 
provisions that give a creditor a lien that is valid both inside and 
outside bankruptcy against a bona fide purchaser of property from the 
debtor, or that creates a trust fund for the benefit of creditors 
meeting similar criteria. See Packers and Stockyards Act Sec. 206, 7 
U.S.C. 196 (1976).
    Section 541(c)(2) follows the position taken in the House bill and 
rejects the position taken in the Senate amendment with respect to 
income limitations on a spend-thrift trust.
    Section 541(d) of the House amendment is derived from section 541(e) 
of the Senate amendment and reiterates the general principle that where 
the debtor holds bare legal title without any equitable interest, that 
the estate acquires bare legal title without any equitable interest in 
the property. The purpose of section 541(d) as applied to the secondary 
mortgage market is identical to the purpose of section 541(e) of the 
Senate amendment and section 541(d) will accomplish the same result as 
would have been accomplished by section 541(e). Even if a mortgage 
seller retains for purposes of servicing legal title to mortgages or 
interests in mortgages sold in the secondary mortgage market, the 
trustee would be required by section 541(d) to turn over the mortgages 
or interests in mortgages to the purchaser of those mortgages.
    The seller of mortgages in the secondary mortgage market will often 
retain the original mortgage notes and related documents and the seller 
will not endorse the notes to reflect the sale to the purchaser. 
Similarly, the purchaser will often not record the purchaser's ownership 
of the mortgages or interests in mortgages under State recording 
statutes. These facts are irrelevant and the seller's retention of the 
mortgage documents and the purchaser's decision not to record do not 
change the trustee's obligation to turn the mortgages or interests in 
mortgages over to the purchaser. The application of section 541(d) to 
secondary mortgage market transactions will not be affected by the terms 
of the servicing agreement between the mortgage servicer and the 
purchaser of the mortgages. Under section 541(d), the trustee is 
required to recognize the purchaser's title to the mortgages or 
interests in mortgages and to turn this property over to the purchaser. 
It makes no difference whether the servicer and the purchaser 
characterize their relationship as one of trust, agency, or independent 
contractor.
    The purpose of section 541(d) as applied to the secondary mortgage 
market is therefore to make certain that secondary mortgage market sales 
as they are currently structured are not subject to challenge by 
bankruptcy trustees and that purchasers of mortgages will be able to 
obtain the mortgages or interests in mortgages which they have purchased 
from trustees without the trustees asserting that a sale of mortgages is 
a loan from the purchaser to the seller.
    Thus, as section 541(a)(1) clearly states, the estate is comprised 
of all legal or equitable interests of the debtor in property as of the 
commencement of the case. To the extent such an interest is limited in 
the hands of the debtor, it is equally limited in the hands of the 
estate except to the extent that defenses which are personal against the 
debtor are not effective against the estate.
    Property of the estate: The Senate amendment provided that property 
of the estate does not include amounts held by the debtor as trustee and 
any taxes withheld or collected from others before the commencement of 
the case. The House amendment removes these two provisions. As to 
property held by the debtor as a trustee, the House amendment provides 
that property of the estate will include whatever interest the debtor 
held in the property at the commencement of the case. Thus, where the 
debtor held only legal title to the property and the beneficial interest 
in that property belongs to another, such as exists in the case of 
property held in trust, the property of the estate includes the legal 
title, but not the beneficial interest in the property.
    As to withheld taxes, the House amendment deletes the rule in the 
Senate bill as unnecessary since property of the estate does not include 
the beneficial interest in property held by the debtor as a trustee. 
Under the Internal Revenue Code of 1954 (section 7501) [26 U.S.C. 7501], 
the amounts of withheld taxes are held to be a special fund in trust for 
the United States. Where the Internal Revenue Service can demonstrate 
that the amounts of taxes withheld are still in the possession of the 
debtor at the commencement of the case, then if a trust is created, 
those amounts are not property of the estate. Compare In re Shakesteers 
Coffee Shops, 546 F.2d 821 (9th Cir. 1976) with In re Glynn Wholesale 
Building Materials, Inc. (S.D. Ga. 1978) and In re Progress Tech 
Colleges, Inc., 42 Aftr 2d 78-5573 (S.D. Ohio 1977).
    Where it is not possible for the Internal Revenue Service to 
demonstrate that the amounts of taxes withheld are still in the 
possession of the debtor at the commencement of the case, present law 
generally includes amounts of withheld taxes as property of the estate. 
See, e.g., United States v. Randall, 401 U.S. 513 (1973) [91 S. Ct. 991, 
28 L.Ed.2d 273] and In re Tamasha Town and Country Club, 483 F.2d 1377 
(9th Cir. 1973). Nonetheless, a serious problem exists where ``trust 
fund taxes'' withheld from others are held to be property of the estate 
where the withheld amounts are commingled with other assets of the 
debtor. The courts should permit the use of reasonable assumptions under 
which the Internal Revenue Service, and other tax authorities, can 
demonstrate that amounts of withheld taxes are still in the possession 
of the debtor at the commencement of the case. For example, where the 
debtor had commingled that amount of withheld taxes in his general 
checking account, it might be reasonable to assume that any remaining 
amounts in that account on the commencement of the case are the withheld 
taxes. In addition, Congress may consider future amendments to the 
Internal Revenue Code [title 26] making clear that amounts of withheld 
taxes are held by the debtor in a trust relationship and, consequently, 
that such amounts are not property of the estate.


                        senate report no. 95-989

    This section defines property of the estate, and specifies what 
property becomes property of the estate. The commencement of a 
bankruptcy case creates an estate. Under paragraph (1) of subsection 
(a), the estate is comprised of all legal or equitable interest of the 
debtor in property, wherever located, as of the commencement of the 
case. The scope of this paragraph is broad. It includes all kinds of 
property, including tangible or intangible property, causes of action 
(see Bankruptcy Act Sec. 70a(6) [section 110(a)(6) of former title 11]), 
and all other forms of property currently specified in section 70a of 
the Bankruptcy Act Sec. 70a [section 110(a) of former title 11], as well 
as property recovered by the trustee under section 542 of proposed title 
11, if the property recovered was merely out of the possession of the 
debtor, yet remained ``property of the debtor.'' The debtor's interest 
in property also includes ``title'' to property, which is an interest, 
just as are a possessory interest, or lease-hold interest, for example. 
The result of Segal v. Rochelle, 382 U.S. 375 (1966), is followed, and 
the right to a refund is property of the estate.
    Though this paragraph will include choses in action and claims by 
the debtor against others, it is not intended to expand the debtor's 
rights against others more than they exist at the commencement of the 
case. For example, if the debtor has a claim that is barred at the time 
of the commencement of the case by the statute of limitations, then the 
trustee would not be able to pursue that claim, because he too would be 
barred. He could take no greater rights than the debtor himself had. But 
see proposed 11 U.S.C. 108, which would permit the trustee a tolling of 
the statute of limitations if it had not run before the date of the 
filing of the petition.
    Paragraph (1) has the effect of overruling Lockwood v. Exchange 
Bank, 190 U.S. 294 (1903), because it includes as property of the estate 
all property of the debtor, even that needed for a fresh start. After 
the property comes into the estate, then the debtor is permitted to 
exempt it under proposed 11 U.S.C. 522, and the court will have 
jurisdiction to determine what property may be exempted and what remains 
as property of the estate. The broad jurisdictional grant in proposed 28 
U.S.C. 1334 would have the effect of overruling Lockwood independently 
of the change made by this provision.
    Paragraph (1) also has the effect of overruling Lines v. Frederick, 
400 U.S. 18 (1970).
    Situations occasionally arise where property ostensibly belonging to 
the debtor will actually not be property of the debtor, but will be held 
in trust for another. For example, if the debtor has incurred medical 
bills that were covered by insurance, and the insurance company had sent 
the payment of the bills to the debtor before the debtor had paid the 
bill for which the payment was reimbursement, the payment would actually 
be held in a constructive trust for the person to whom the bill was 
owed. This section and proposed 11 U.S.C. 545 also will not affect 
various statutory provisions that give a creditor of the debtor a lien 
that is valid outside as well as inside bankruptcy, or that creates a 
trust fund for the benefit of a creditor of the debtor. See Packers and 
Stockyards Act Sec. 206, 7 U.S.C. 196.
    Bankruptcy Act Sec. 8 [section 26 of former title 11] has been 
deleted as unnecessary. Once the estate is created, no interests in 
property of the estate remain in the debtor. Consequently, if the debtor 
dies during the case, only property exempted from property of the estate 
or acquired by the debtor after the commencement of the case and not 
included as property of the estate will be available to the 
representative of the debtor's probate estate. The bankruptcy proceeding 
will continue in rem with respect to property of the state, and the 
discharge will apply in personam to relieve the debtor, and thus his 
probate representative, of liability for dischargeable debts.
    The estate also includes the interests of the debtor and the 
debtor's spouse in community property, subject to certain limitations; 
property that the trustee recovers under the avoiding powers; property 
that the debtor acquires by bequest, devise, inheritance, a property 
settlement agreement with the debtor's spouse, or as the beneficiary of 
a life insurance policy within 180 days after the petition; and 
proceeds, product, offspring, rents, and profits of or from property of 
the estate, except such as are earning from services performed by an 
individual debtor after the commencement of the case. Proceeds here is 
not used in a confining sense, as defined in the Uniform Commercial 
Code, but is intended to be a broad term to encompass all proceeds of 
property of the estate. The conversion in form of property of the estate 
does not change its character as property of the estate.
    Subsection (b) excludes from property of the estate any power, such 
as a power of appointment, that the debtor may exercise solely for the 
benefit of an entity other than the debtor. This changes present law 
which excludes powers solely benefiting other persons but not other 
entities.
    Subsection (c) invalidates restrictions on the transfer of property 
of the debtor, in order that all of the interests of the debtor in 
property will become property of the estate. The provisions invalidated 
are those that restrict or condition transfer of the debtor's interest, 
and those that are conditioned on the insolvency or financial condition 
of the debtor, on the commencement of a bankruptcy case, or on the 
appointment of a custodian of the debtor's property. Paragraph (2) of 
subsection (c), however, preserves restrictions on a transfer of a 
spendthrift trust that the restriction is enforceable nonbankruptcy law 
to the extent of the income reasonably necessary for the support of a 
debtor and his dependents.
    Subsection (d) [enacted as (e)], derived from section 70c of the 
Bankruptcy Act [section 110(c) of former title 11], gives the estate the 
benefit of all defenses available to the debtor as against an entity 
other than the estate, including such defenses as statutes of 
limitations, statutes of frauds, usury, and other personal defenses, and 
makes waiver by the debtor after the commencement of the case 
ineffective to bind the estate.
    Section 541(e) [enacted as (d)] confirms the current status under 
the Bankruptcy Act [former title 11] of bona fide secondary mortgage 
market transactions as the purchase and sale of assets. Mortgages or 
interests in mortgages sold in the secondary market should not be 
considered as part of the debtor's estate. To permit the efficient 
servicing of mortgages or interests in mortgages the seller often 
retains the original mortgage notes and related documents, and the 
purchaser records under State recording statutes the purchaser's 
ownership of the mortgages or interests in mortgages purchased. Section 
541(e) makes clear that the seller's retention of the mortgage documents 
and the purchaser's decision not to record do not impair the asset sale 
character of secondary mortgage market transactions. The committee notes 
that in secondary mortgage market transactions the parties may 
characterize their relationship as one of trust, agency, or independent 
contractor. The characterization adopted by the parties should not 
affect the statutes in bankruptcy on bona fide secondary mortgage market 
purchases and sales.

                       References in Text

    The Higher Education Act of 1965, referred to in subsec. (b)(3), is 
Pub. L. 89-329, Nov. 8, 1965, 79 Stat. 1219, as amended, which is 
classified principally to chapter 28 (Sec. 1001 et seq.) of Title 20, 
Education. For complete classification of this Act to the Code, see 
Short Title note set out under section 1001 of Title 20 and Tables.


                               Amendments

    1994--Subsec. (b)(4). Pub. L. 103-394, Sec. 208(b), designated 
existing provisions of subpar. (A) as cl. (i) of subpar. (A), 
redesignated subpar. (B) as cl. (ii) of subpar. (A), substituted ``the 
interest referred to in clause (i)'' for ``such interest'', substituted 
``; or'' for period at end of cl. (ii), and added subpar. (B).
    Pub. L. 103-394, Sec. 223(2), which directed the amendment of 
subsec. (b)(4) by striking out period at end and inserting ``; or'', was 
executed by inserting ``or'' after semicolon at end of subsec. 
(b)(4)(B)(ii), as added by Pub. L. 103-394, Sec. 208(b)(3), to reflect 
the probable intent of Congress.
    Subsec. (b)(5). Pub. L. 103-394, Sec. 223, added par. (5).
    1992--Subsec. (b). Pub. L. 102-486 added par. (4) and closing 
provisions.
    1990--Subsec. (b)(3). Pub. L. 101-508 added par. (3).
    1984--Subsec. (a). Pub. L. 98-353, Sec. 456(a)(1), (2), struck out 
``under'' after ``under'' and inserted ``and by whomever held'' after 
``located''.
    Subsec. (a)(3). Pub. L. 98-353, Sec. 456(a)(3), inserted ``329(b), 
363(n),''.
    Subsec. (a)(5). Pub. L. 98-353, Sec. 456(a)(4), substituted ``Any'' 
for ``An''.
    Subsec. (a)(6). Pub. L. 98-353, Sec. 456(a)(5), substituted ``or 
profits'' for ``and profits''.
    Subsec. (b). Pub. L. 98-353, Sec. 363(a), amended subsec. (b) 
generally. Prior to amendment, subsec. (b) read as follows: ``Property 
of the estate does not include any power that the debtor may only 
exercise solely for the benefit of an entity other than the debtor.''
    Subsec. (c)(1). Pub. L. 98-353, Sec. 456(b)(1), inserted ``in an 
agreement, transfer, instrument, or applicable nonbankruptcy law''.
    Subsec. (c)(1)(B). Pub. L. 98-353, Sec. 456(b)(2), substituted 
``taking'' for ``the taking'', and inserted ``before such commencement'' 
after ``custodian''.
    Subsec. (d). Pub. L. 98-353, Sec. 456(c), inserted ``(1) or (2)'' 
after ``(a)''.
    Subsec. (e). Pub. L. 98-353, Sec. 456(d), struck out subsec. (e) 
which read as follows: ``The estate shall have the benefit of any 
defense available to the debtor as against an entity other than the 
estate, including statutes of limitation, statutes of frauds, usury, and 
other personal defenses. A waiver of any such defense by the debtor 
after the commencement of the case does not bind the estate.''


                    Effective Date of 1994 Amendment

    Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not 
applicable with respect to cases commenced under this title before Oct. 
22, 1994, see section 702 of Pub. L. 103-394, set out as a note under 
section 101 of this title.


                    Effective Date of 1992 Amendment

    Amendment by Pub. L. 102-486 effective Oct. 24, 1992, but not 
applicable with respect to cases commenced under this title before Oct. 
24, 1992, see section 3017(c) of Pub. L. 102-486, set out as a note 
under section 101 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-353 effective with respect to cases filed 90 
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out 
as a note under section 101 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 101, 365, 522, 524, 726, 
728, 1207, 1306 of this title; title 28 section 1409.



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