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In re Zachary Allen ; Tiara Donegan

Summarizing by Lars Fuller

Rentas v. Gonzalez

BAP NO. PR 13-011
The Bankruptcy Appellate Panel ("B.A.P.") reversed the Bankruptcy Court's grant of summary judgment in favor of the Trustee. The court determined that section 542 could not be used to compel a probate court to turn over proceeds of a property sale to the bankruptcy estate because the estate, at most, held an interest in the probate estate, not the probate estate's property. The B.A.P. also determined that the probate exception to federal jurisdiction prevented the bankruptcy court from ordering a specific distribution of the probate estate's assets because the probate exception prevents a federal court from probating a will or administering a probate estate.
Procedural context:
The decisions are appeals from the bankruptcy court's grant of summary judgment in favor of the Trustee that compelled a probate court to disperse a portion of the probate estate's assets to the trustee.
Prior to filing their Chapter 11 bankruptcy petitions, the Debtors signed an agreement to purchase a 78.54% interest in a probate estate. The probate estate's assets were valuable parcels of land located in Puerto Rico. The Debtors paid 10% down and signed promissory notes for the remaining 90% of the purchase price. Eleven days after the Debtor's filed their bankruptcy case, the properties were sold at public auction. The Debtors filed multiple actions to have the sale annulled, to no avail. In 2009, the Chapter 7 trustee appointed to oversee the Debtors' estate sued the beneficiaries to the probate estate that had purportedly sold their interests, pre-bankruptcy petition, to the Debtors. The Trustee demanded the turnover of 78.54% of the proceeds from the sale of the probate estate's assets, which were still in the possession of the clerk of the Puerto Rican probate court.
Deasy, Kornreich, Bailey

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