Bankruptcy Court Affirms That Post-Petition Foreclosure Payment Not Property of Debtor’s EstateThe U.S. Bankruptcy Appellate Panel of the Ninth Circuit has affirmed a bankruptcy court’s order that a post-petition foreclosure payment is not the property of the debtor’s estate.

In In re Neidorf, Carrie Margaret Neidorf filed Chapter 7 bankruptcy in 2008 and included her home as an estate asset with no equity. After her Chapter 7 bankruptcy petition was filed, her lender — Countrywide Home Loans, Inc. — received a relief-from-stay order and foreclosed on the home.

Subsequently, Countrywide assigned its interest in the deed of trust to Bank of America, N.A. as part of its merger. In late 2008, Neidorf received a discharge under 11 U.S.C. §727.

In 2009, Bank of America sold Neidorf’s home at a foreclosure sale. In 2014, while Neidorf’s Chapter 7 case was still open, she received a foreclosure payment from Bank of America. Neidorf notified the bankruptcy trustee of the payment. The trustee then moved to compel her to turn over the payment, arguing that it was the property of the bankruptcy estate.

The bankruptcy court denied the trustee’s motion. Upon appeal, the Appellate Panel affirmed, finding that the post-petition payment was not an after-acquired asset per §541(a)(7) since it was not created by or with estate property and could not be traced to any pre-petition interest included in the estate.

Neidorf’s right to retain the payment was the result of an April 2011 consent order between Bank of America and the government, which required the bank to make payments to borrowers whose primary residences had been foreclosed upon during a specific time period. Neidorf qualified under these conditions, all of which occurred post-petition.

The panel also said that the bankruptcy trustee had failed to demonstrate how the estate obtained an interest in the foreclosure payment under those circumstances.

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