Author: Andrew M. Thaler
Upon the filing of a Bankruptcy Petition all property owned by the debtor automatically becomes
property of the bankruptcy estate by operation of law. Debtors are required to list in their
Bankruptcy Schedules all property that they own or in which they have an interest. Individual
debtors can legally exempt certain property and keep it from their creditors. However, exempt and
non‐exempt property becomes “property of the estate”.
If a debtor fails to disclose property in his/her Schedules there can be adverse consequences. For
example, the debtor’s discharge of all debts could be denied. Beyond that, property which is not
“administered” by the trustee theoretically remains property of the estate forever. The Bankruptcy
Code does, however, provide that property that is disclosed but not administered is likewise
abandoned by operation of law back to the debtor when the bankruptcy case is closed.
property of the bankruptcy estate by operation of law. Debtors are required to list in their
Bankruptcy Schedules all property that they own or in which they have an interest. Individual
debtors can legally exempt certain property and keep it from their creditors. However, exempt and
non‐exempt property becomes “property of the estate”.
If a debtor fails to disclose property in his/her Schedules there can be adverse consequences. For
example, the debtor’s discharge of all debts could be denied. Beyond that, property which is not
“administered” by the trustee theoretically remains property of the estate forever. The Bankruptcy
Code does, however, provide that property that is disclosed but not administered is likewise
abandoned by operation of law back to the debtor when the bankruptcy case is closed.
To illustrate the implications of this aspect of bankruptcy law, consider a case that I was involved in
over 25 years ago. An attorney representing client “A” told me that an early 1960’s fire in the Suffolk
County Clerk’s office had destroyed land records that would establish the chain of title and
ownership for a parcel of land in Brookhaven Town. “A” had acquired a 2/3’s interest and was
looking to acquire the remaining 1/3 interest. The attorney said that they needed a bankruptcy
attorney to assist “A” in acquiring that interest. I was not told or led to believe that the property had
great value or that other parties asserted an interest in it. “A” simply wanted to quiet title to the
parcel.
The attorney had done some research and determined that a prior owner of the 1/3 interest “B”, had
filed bankruptcy in the past. “A” had requisitioned records from the National Archives which
revealed that “B” had filed bankruptcy in 1871! “B’s” Schedules, which were incomplete, did not
make mention of the subject property. The attorney believed that if the property was not disclosed
in the prior bankruptcy it could not have been administered and remained property of the
bankruptcy estate. There was nothing in the archive to reflect that anyone involved in the
administration of the case was aware of the existence of the property.
Incredibly “A” obtained an assignment of claim from a creditor in the ancient bankruptcy case. As a
creditor, “A” had standing to seek to have the case re‐opened so the undisclosed interest could be
administered. “A’s” plan was to have the 1871 bankruptcy case re‐opened, have a chapter 7 trustee
appointed and then bid for the interest in the property. I was asked if the bankruptcy case could in
fact be re‐opened.
There was no internet in those days, so I went to the Hofstra law library and read the bankruptcy
statute as it existed at the time of the bankruptcy filing. The statute was considerably shorter and
much less complicated than today’s version. Surprisingly, the statute read very much like current
bankruptcy law in many respects. One thing was clear ‐ even in 1871 property of the estate that was
not administered remained property of the estate.
I learned that in 1871 there was no Eastern District of New York Bankruptcy Court – the venue where
this case might have been filed today. In fact, there were no Bankruptcy Courts in 1871 and no
Eastern District of New York federal courts. Bankruptcy matters were handled by the U.S. District
Courts. So I filed my motion to re‐open the case in the United States District Court for the Southern
District of New York where the case was originally filed.
About a week later I received a phone call from the District Court judge’s law clerk. “Mr. Thaler you
appear to have made a mistake, we have no record of a case index number 2 and you must have
meant to say the bankruptcy case was filed in 1971 not 1871.” After explanation the District Court
assigned the case to a Southern District bankruptcy judge. The bankruptcy judge summoned me to
his chambers to explain the situation. Upon hearing the facts as I knew them at the time the judge
re‐opened the case. At that juncture the attorney who hired me told me that he would take over.
Despite phone calls made to find out what happened I never heard from him again ‐ which was
probably a good thing.
Long story short, in doing research some years later on abandonment of property I came across a
decision that the judge wrote on the case. I learned that after the case had been re‐opened, a trustee
was appointed and the interest sold to “A”. But I also learned that “A” and a college “C” were
embroiled in litigation pending in Supreme Court Suffolk County to quiet title to the property at the
time the application was made to open the ancient bankruptcy case. When “C” found out what
happened it made a motion to vacate and set aside the sale and for the case to be re‐closed asserting
that the property had in fact been abandoned or the subject of a settlement back in the 1870’s. The
attorney for “A” had failed to disclose to me, and the bankruptcy court, that “C” asserted ownership
to the property, that there was active pending litigation or that the property was worth $5.9 million
dollars. Faced with “A’s” unclean hands the judge vacated the sale order and ultimately closed the
case citing laches and reasoning that fairness and equity dictated that the matter be returned to the
pending state court litigation for resolution of the title dispute.
The takeaway, however, is that the property did remain property of the estate for over 120 years
because it was never “administered” and that the Bankruptcy Code provides no time limit for an
application to reopen an estate. The ancient bankruptcy case was re‐opened to administer the
property. The later closing of the case was prompted by the unique facts of the case and the judge’s
belief that the public interest and purpose of the Bankruptcy Code would not be served by further
administration of the estate particularly in view of the pending state court action. This must be a
title company’s nightmare and all the more reason to make sure to obtain title insurance when
purchasing real property interests.
However, real property interests are not the only property that can be affected by a debtor’s failure
to disclose. It could be personal property or even a legal claim to sue someone. In my capacity as a
chapter 7 trustee, about once or twice a year a debtor seeks to re‐open their bankruptcy case to
pursue a personal injury action for a claim that they did not disclose in their Bankruptcy Schedules.
This usually happens after a defendant or the defendant’s insurance carrier (who regularly check for
prior plaintiff bankruptcy filings for just this reason) discover that a cause of action was not disclosed
and therefore not abandoned back to the debtor. The carrier or defendant routinely successfully
move to dismiss the personal injury action for lack of plaintiff’s standing because the cause of action
belongs to the bankruptcy estate. Thankfully there is a mechanism for the trustee to commence a
new action within a window of time after the dismissal. Plaintiff personal injury attorneys should ask
their clients if they have filed bankruptcy. If nothing else they will want to protect their investment of
time and the fee they hope to earn if the litigation is successful.
For those interested in the fascinating 1871 bankruptcy case, the citation is In re Fuller 146 B.R.633.
over 25 years ago. An attorney representing client “A” told me that an early 1960’s fire in the Suffolk
County Clerk’s office had destroyed land records that would establish the chain of title and
ownership for a parcel of land in Brookhaven Town. “A” had acquired a 2/3’s interest and was
looking to acquire the remaining 1/3 interest. The attorney said that they needed a bankruptcy
attorney to assist “A” in acquiring that interest. I was not told or led to believe that the property had
great value or that other parties asserted an interest in it. “A” simply wanted to quiet title to the
parcel.
The attorney had done some research and determined that a prior owner of the 1/3 interest “B”, had
filed bankruptcy in the past. “A” had requisitioned records from the National Archives which
revealed that “B” had filed bankruptcy in 1871! “B’s” Schedules, which were incomplete, did not
make mention of the subject property. The attorney believed that if the property was not disclosed
in the prior bankruptcy it could not have been administered and remained property of the
bankruptcy estate. There was nothing in the archive to reflect that anyone involved in the
administration of the case was aware of the existence of the property.
Incredibly “A” obtained an assignment of claim from a creditor in the ancient bankruptcy case. As a
creditor, “A” had standing to seek to have the case re‐opened so the undisclosed interest could be
administered. “A’s” plan was to have the 1871 bankruptcy case re‐opened, have a chapter 7 trustee
appointed and then bid for the interest in the property. I was asked if the bankruptcy case could in
fact be re‐opened.
There was no internet in those days, so I went to the Hofstra law library and read the bankruptcy
statute as it existed at the time of the bankruptcy filing. The statute was considerably shorter and
much less complicated than today’s version. Surprisingly, the statute read very much like current
bankruptcy law in many respects. One thing was clear ‐ even in 1871 property of the estate that was
not administered remained property of the estate.
I learned that in 1871 there was no Eastern District of New York Bankruptcy Court – the venue where
this case might have been filed today. In fact, there were no Bankruptcy Courts in 1871 and no
Eastern District of New York federal courts. Bankruptcy matters were handled by the U.S. District
Courts. So I filed my motion to re‐open the case in the United States District Court for the Southern
District of New York where the case was originally filed.
About a week later I received a phone call from the District Court judge’s law clerk. “Mr. Thaler you
appear to have made a mistake, we have no record of a case index number 2 and you must have
meant to say the bankruptcy case was filed in 1971 not 1871.” After explanation the District Court
assigned the case to a Southern District bankruptcy judge. The bankruptcy judge summoned me to
his chambers to explain the situation. Upon hearing the facts as I knew them at the time the judge
re‐opened the case. At that juncture the attorney who hired me told me that he would take over.
Despite phone calls made to find out what happened I never heard from him again ‐ which was
probably a good thing.
Long story short, in doing research some years later on abandonment of property I came across a
decision that the judge wrote on the case. I learned that after the case had been re‐opened, a trustee
was appointed and the interest sold to “A”. But I also learned that “A” and a college “C” were
embroiled in litigation pending in Supreme Court Suffolk County to quiet title to the property at the
time the application was made to open the ancient bankruptcy case. When “C” found out what
happened it made a motion to vacate and set aside the sale and for the case to be re‐closed asserting
that the property had in fact been abandoned or the subject of a settlement back in the 1870’s. The
attorney for “A” had failed to disclose to me, and the bankruptcy court, that “C” asserted ownership
to the property, that there was active pending litigation or that the property was worth $5.9 million
dollars. Faced with “A’s” unclean hands the judge vacated the sale order and ultimately closed the
case citing laches and reasoning that fairness and equity dictated that the matter be returned to the
pending state court litigation for resolution of the title dispute.
The takeaway, however, is that the property did remain property of the estate for over 120 years
because it was never “administered” and that the Bankruptcy Code provides no time limit for an
application to reopen an estate. The ancient bankruptcy case was re‐opened to administer the
property. The later closing of the case was prompted by the unique facts of the case and the judge’s
belief that the public interest and purpose of the Bankruptcy Code would not be served by further
administration of the estate particularly in view of the pending state court action. This must be a
title company’s nightmare and all the more reason to make sure to obtain title insurance when
purchasing real property interests.
However, real property interests are not the only property that can be affected by a debtor’s failure
to disclose. It could be personal property or even a legal claim to sue someone. In my capacity as a
chapter 7 trustee, about once or twice a year a debtor seeks to re‐open their bankruptcy case to
pursue a personal injury action for a claim that they did not disclose in their Bankruptcy Schedules.
This usually happens after a defendant or the defendant’s insurance carrier (who regularly check for
prior plaintiff bankruptcy filings for just this reason) discover that a cause of action was not disclosed
and therefore not abandoned back to the debtor. The carrier or defendant routinely successfully
move to dismiss the personal injury action for lack of plaintiff’s standing because the cause of action
belongs to the bankruptcy estate. Thankfully there is a mechanism for the trustee to commence a
new action within a window of time after the dismissal. Plaintiff personal injury attorneys should ask
their clients if they have filed bankruptcy. If nothing else they will want to protect their investment of
time and the fee they hope to earn if the litigation is successful.
For those interested in the fascinating 1871 bankruptcy case, the citation is In re Fuller 146 B.R.633.
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