Ch. 7 Debtors Must Pay Trustee For Daughter’s Ballet Course

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Daniel Gill

Two married debtors have to repay the bankruptcy trustee for a ballet course and related trip they bought for their daughter prior to filing Chapter 7, a federal judge ruled ( Nebel v. Warfield , 2017 BL 194861, D. Ariz., No. CV-16-08240-PCT-GMS, 6/8/17 ).

In addition, the debtors must pay the trustee 25 percent of their accrued paid time off as they use it, Judge G. Murray Snow of the U.S. District Court for the District of Arizona said in a June 8 opinion.

This is a cautionary story for attorneys counseling debtors on their pre-bankruptcy planning. Here, the debtors found themselves in a tight spot because of a purchase they made in the month before they filed.

Money for Ballet Course

In March and April 2015, Mark and Amy Nebel made payments for airfare, a ballet course’s tuition and for room and board, totaling $3,491.20, the court said. The payments were for their daughter, 17, to attend a ballet course after the commencement of the bankruptcy case.

The Nebels “thus had a property interest in the tickets and the course,” the court said, and that property interest constituted property of the bankruptcy estate created when they filed Chapter 7 on April 29, 2015.

In Chapter 7, a debtor’s property is administered by a trustee for the benefit of creditors.

Although the debtors argued that their property interest in the non-transferable tickets was less than what they paid, the court—without much discussion—concluded that the bankruptcy court wasn’t clearly erroneous when it found that the value of the interest was fair market value, which was determined by what the debtors actually paid.

25 Percent of Accrued Paid Time Off

In addition to ordering the turnover of the ballet course money, the bankruptcy court also ordered that the Nebels had to turn over 25 percent of the time off they had accrued as of the bankruptcy filing, at such time as they use (or are paid for) that time off.

Once again, the court found that the estate had an interest in the debtor’s property at the time of the filing, and that included accrued but unused time off. Even if the money isn’t realized until a time in the future, it is nevertheless property of the bankruptcy estate and subject to the trustee’s administration, the court said.

Although the court doesn’t say so in its opinion, it’s likely that that 25 percent figure derives from Arizona’s exemption laws, which allow for garnishment by creditors of not more than 25 percent of a debtor’s net pay.

The Nebels were represented by Harold E. Campbell III, Mesa, Ariz. Lawrence J. Warfiled, the Chapter 7 trustee, was represented by Joel F. Newell, Phoenix.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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