Barowsky v. Serelson, C88-0368J
| Decision Date | 01 May 1989 |
| Docket Number | No. C88-0368J,C88-0369B.,C88-0368J |
| Parties | In re Todd Allen BAROWSKY and Kody Sirentha Barowsky, Debtor-Appellant, v. Carol SERELSON, Trustee, Appellee. In re Gregory O'Connell ROBERSON and Hanna Bailey Roberson, Debtor-Appellant, v. Carol SERELSON, Trustee, Appellee. |
| Court | U.S. District Court — District of Wyoming |
Georg Jensen, Cheyenne, Wyo., for appellants.
Ken McCartney, Cheyenne, Wyo., for appellee.
ORDER AFFIRMING BANKRUPTCY COURT
THE ABOVE CAPTIONED MATTERS are consolidated appeals from separate orders entered by the bankruptcy court denying the debtors' motions for reclamation and abandonment of property. They came before this court for hearing on April 7, 1989. Although the two cases were filed as separate appeals, the court consolidated them on February 21, 1989, because they involved identical issues.
The debtors, Todd Allen Barowsky and Kody Sirentha Barowsky filed a joint Chapter 7 bankruptcy petition on July 24, 1987. On their bankruptcy assets schedule, the debtors failed to list an anticipated tax refund for the year ending December 31, 1987. On September 28, 1987, the trustee filed a "trustee's report of no distribution and abandonment" requesting that she be discharged as trustee, which stated:
The undersigned, Carol A. Serelson, Trustee in the above estate, reports that she has neither received any property nor paid any money on account of this estate; that she has made diligent inquiry into the whereabouts of property belonging to the estate over and above that exempted by the debtor to which the trustee has no objection. Scheduled assets not claimed as exempt, if any, are found to be of inconsequential value to the creditors of the estate and are abandoned.
The bankruptcy court discharged the debtors on December 3, 1987. Some time after January 1, 1988, the debtors filed their federal income tax returns for which they were entitled to receive a refund of $1,092.74. Although the IRS originally had sent the check to the trustee, she nonetheless promptly returned it to the IRS. Because the debtors had already been discharged in bankruptcy, the trustee was not entitled to keep the check. She did, however, advise the IRS and the debtors that she intended to reopen the case to collect and distribute the refund as an asset of the bankruptcy estate.
On May 12, 1988, the trustee filed a notice to reopen the debtors' Chapter 7 case, which the bankruptcy court granted on June 17, 1988. After reopening the case, the trustee demanded that the debtors turn over to the estate the prepetition portion of their tax refund. In response to this demand, the debtors filed a motion seeking an order that the trustee had abandoned her prepetition interest in the tax refund. The bankruptcy court denied the motion and it is from that denial that the debtors now appeal.
The facts are substantially the same with respect to the debtors Gregory O'Connell Roberson and Hanna Bailey Roberson. The Robersons filed their joint Chapter 7 petition on October 2, 1987, and their case was closed as a no-asset one on February 12, 1988. The trustee, however, petitioned to reopen the case after she learned that the debtors had received a tax refund for $807.57. She seeks to have returned to the estate the prepetition portion of the debtors' tax refunds.
The issue on appeal is whether the prepetition portion of the debtors' tax refunds are property of the estate within the meaning of the Bankruptcy Code. The debtors also present an issue whether the trustee should be estopped from seeking return to the estate of the prepetition portions of the tax refunds.
The filing of a bankruptcy petition creates an estate, which becomes comprised of, among other things, all the debtor's legal or equitable interest "in property as of the commencement of the case." 11 U.S.C. § 541(a). The purpose of the statute is:
to secure for creditors everything of value the bankrupt may possess in alienable or leviable form when he files his petition. To this end, the term "property" has been construed most generously and an interest is not outside its reach because it is novel or contingent or because enjoinment must be postponed.
Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966) (emphasis added). The Bankruptcy Act seeks "to convert the estate of the bankrupt into cash and distribute among creditors and then to give the bankrupt a fresh start with such exemptions and rights as the statute left untouched." Kokoszka v. Belford, 417 U.S. 642, 645-46, 94 S.Ct. 2431, 2434, 41 L.Ed.2d 374 (1974) (quoting Burlingham v. Crouse, 228 U.S. 459, 473, 33 S.Ct. 564, 568, 57 L.Ed. 920 (1913)).
In Kokoszka, the Supreme Court held that a debtor's income tax refund was property of the estate. 417 U.S. at 648, 94 S.Ct. at 2435. See also Segal 382 U.S. 375, 86 S.Ct. 511 (). Debtors, however, attempt to distinguish Kokoszka on two grounds. First, they argue that in Kokoszka, the tax refund was property of the estate only because both the bankruptcy petition and the income tax return were filed after the taxable fiscal year at issue had passed. According to the debtors, their 1987 income tax refunds are not property of the estate because they filed their petitions before the end of that taxable fiscal year. Under these circumstances, presumably the tax refunds are not property of the estate because the debtors' right to them came into existence after the fiscal year in which they filed their returns. The argument, however, ignores the reasoning underlying the Supreme Court's decision in Kokoszka. In reaching its holding, the court noted that because "a `tax refund is not the weekly or other periodic income required by a wage earner for his basic support, to deprive...
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