Summary of a Recent
Judicial
Development in
Secured Transactions
Crop Disaster Payment from Legislation Enacted Post-Filing
Is Not Property of the Bankruptcy Estate
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Bracewell, 454 F.3d 1234 (11th Cir. 2006), the United States Court of Appeals for the Eleventh Circuit held that crop disaster payments stemming from an act signed into law after the debtor had filed his bankruptcy case were not property of his estate.
Background
Debtor filed a Chapter 12 bankruptcy petition in May 2002, and converted to Chapter 7 in January 2003. Id. at 1236. In 2002, while his petition was pending, the Emergency Farmer and Rancher Assistance Act of 2002 was introduced. Id. It was reintroduced as the Agricultural Assistance Act of 2003 and signed into law the following year, after the Debtor had converted his case to Chapter 7. Id. The Act provided monetary assistance to farmers who had suffered losses to their 2001 or 2002 crops due to weather-related disasters or emergency conditions, and if a farm had suffered a loss in both years, the farmer could receive assistance for only one year. Id. at 1236-37. The Debtor elected to receive $41,566 in assistance for the loss of his 2001 wheat and cotton crops, and received the payment in February 2004 while his Chapter 7 case was pending. Id. at 1237.
Analysis and Holdings
The first issue before the court was whether the crop disaster payment was property of the bankruptcy estate under § 541(a)(1). Id. at 1237. The court recognized that property of the debtor's estate is property that the debtor had when the bankruptcy case commenced, and not property that he acquired thereafter. Id. The court held that the Debtor's property interest in the payments did not come into existence or accrue until the legislation became law, after his bankruptcy petition had been filed, and therefore the payments were not property of his estate. Id. The court further reasoned that although § 541(a)(6) extends the definition of property of the estate to include "proceeds, product, offspring, rents, or profits of or from property of the estate," his potential future payment was not "property of the estate" and thus could not generate proceeds. Id. at 1245. Therefore the court affirmed the order of the district court and held that the crop disaster payment was not property of the bankruptcy estate under § 541(a)(1) or § 541(a)(6). Id. at 1247.
The case was decided on June 30, 2006.