MacKenzie v. Neidorf (In re Neidorf)

In re Neidorf, BAP No. AZ-14-1496-JuKiPa (9th Cir. B.A.P. July 10, 2015).
A national-mortgage-settlement payment paid to a chapter 7 debtor after the petition date was property of the debtor, not the estate.
Procedural context:
The chapter 7 trustee moved to compel the debtor to turn over a payment made to the debtor after the petition date under the national mortgage settlement. The bankruptcy court denied the motion. On appeal, the BAP affirmed.
The chapter 7 debtor scheduled her residence as having no equity, and she also claimed an exemption in it. One of the lien creditors obtained stay relief and foreclosed. The debtor received a postpetition payment from the foreclosing creditor under the national mortgage settlement. To be considered estate property, a property interest that arises after the petition date must: (1) be created with or by property of the estate, (2) be acquired in the estate’s normal course of business, or (3) otherwise be traceable to or arise out of any prepetition interest included in the estate. Here, the national-mortgage-settlement payment was neither created with or by estate property, nor was it traceable to or did it arise out of any prepetition interest in the estate. That the residence was estate property does not suffice. Rather, the debtor became entitled to the payment as a result of postpetition qualifying events: the settlement and debtor’s status as a borrower who had a pending or completed foreclosure on the borrower’s primary residence during a period of time that was entirely after the petition date.
Meredith A. Jury, Ralph B. Kirscher, and Jim D. Pappas, Bankruptcy Judges.

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