Michigan Bankruptcy Blog
In re Olsen, E.D. Mich., Oct. 27, 2010 (Case No. 10-10926, Hon. Stephen J. Murphy, III, District Judge).
When a person files bankruptcy, all of his or her property becomes property of the bankruptcy estate. This concept of "property of the estate" casts a wide net and includes all of the bankruptcy debtor's legal and equitable interests in property. However, questions often arise when a debtor is listed as an owner of an asset that someone else purchased. In such cases, the debtor might argue that he or she is not the "true," or equitable, owner of the property and that the property therefore cannot be used to pay creditors.
In In re Olsen, the debtor's husband, who did not file bankruptcy, was in a motorcycle accident. He settled a claim for his personal injuries and used the settlement funds to purchase an annuity. He and his wife, the debtor, were listed as co-owners and co-annuitants, and both were entitled to receive payments under the annuity.
When she filed bankruptcy, the debtor argued that the annuity was not property of the estate. She claimed that because her husband had purchased the annuity with funds derived solely from his activities, she had no real or equitable property interest in the annuity. In support of this argument, the debtor compared the annuity to jointly held bank accounts, which can be deemed property of one account holder if that person contributed all of the funds to the account.
The bankruptcy court disagreed and held that one-half of the annuity was property of the estate. On appeal, the district court affirmed. The district court reasoned that the annuity was not like a bank account because an annuity is "not merely a cache of funds" that either owner may withdraw. Id. at *2. Rather, the debtor was vested with an ownership interest in future payments. Because the debtor had the right to receive payments, the debtor was not simply a "nominal" title holder. She instead owned a "real, not illusory" interest in the annuity, such that one-half of the annuity was property of her bankruptcy estate.
In light of this case, debtors should not assume that assets such as annuities will be excluded from the bankruptcy estate simply because they were funded by someone other than a debtor.
ShareholderLaura's practice focuses on bankruptcy, municipal law, collections, and trial-level and appeals litigation. In the bankruptcy arena, she represents primarily Chapter 7 trustees. Laura has handled a wide range of trial and ...
