Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
July 26 — Former NBA player Tony Massenburg, who holds the record for playing with 12 different teams, can't get a Chapter 7 trustee to turn over $30,000 in funds that were commingled with his pension funds in a debtor-in-possession (DIP) account ( Massenburg v. Schlossberg (In re Massenburg), 2016 BL 237695, D. Md., No. TDC-15-3347, 7/25/16 ).
Judge Theodore D. Chuang of the U.S. District Court for the District of Maryland affirmed the judgment of the bankruptcy court and denied the debtor's motion for turnover of the funds.
The “equities lie in the Trustee's favor,” the court concluded, and the $30,000 remaining in the debtor's DIP account was properly treated as nonexempt funds under the “lowest intermediate balance rule.” The Fourth Circuit has approved the use of the lowest intermediate balance method in cases where trust property has been commingled and it “presumes that expenditures are made in a manner that preserves the estate's funds to the maximum extent possible,” the court said.
Massenburg filed for Chapter 11 bankruptcy, which allows companies or individuals to enjoy protections from creditors while they seek to reorganize their debt or liquidate under a plan that must be approved by the bankruptcy court.
Massenburg deposited money, including $550,429 he received from his NBA Players Pension Plan, into a DIP account and continued to withdraw money from this account to pay for living expenses as a debtor-in-possession.
After the case was converted to one under Chapter 7 in which nonexempt assets are liquidated by a trustee and the proceeds are distributed to creditors, Chapter 7 trustee Roger Schlossberg froze the DIP account.
The pension plan funds in the DIP account are exempt, the bankruptcy court said, and all but $30,000 was turned over to Massenburg.
Massenburg moved for the trustee to turn over the $30,000, arguing that he had the right to spend nonexempt funds on his necessary living expenses and that it would be a “fair and equitable” result.
The bankruptcy court denied this request, concluding that the effect of turnover would be to use the entire Chapter 11 estate on the debtor's living expenses.
“Given that commingling was the result of Massenburg's decisions and actions, there is no inequity in applying the recognized lowest intermediate balance rule to conclude that exempt Pension Plan funds were used for Massenburg's withdrawals for living expenses and that nonexempt funds should be deemed to have remained in the DIP Account,” the district court said.
Daniel M. Press, Chung & Press PC, McLean, Va., and Eric Hans Kirchman, Kirchman and Kirchman, Rockville, Md., represented appellant/debtor Tony Arnel Massenburg; Frank J. Mastro, Schlossberg & Mastro, Hagerstown, Md., represented appellee/trustee Roger Schlossberg.
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