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Scott v. King (In re Amerson)

Scott v. King (In re Amerson), Case No. 15-1343 (10th Cir. Oct. 28, 2016)
The exclusion from the bankruptcy estate of an interest in a spendthrift trust under 541(c)(2) is permissive and not mandatory and it is a debtor's choice whether or not to include such interest in a bankruptcy estate. The debtor's failure to claim the exception or otherwise specifically exclude the spendthrift trust from her estate supports the bankruptcy court's determination that the debtor effectively chose to include the interest in the estate. In a very fact-specific analysis, the decision of the BAP (and the bankruptcy court) are affirmed.
Procedural context:
Appeal from the Bankruptcy Appellate Panel affirming the bankruptcy court for the District of Colorado's approval of a settlement agreement of a probate contest filed by the chapter 7 trustee over the objection of the debtor. On appeal, the debtor challenged whether her interest in a spendthrift trust was an asset of the estate under section 541(c)(2).
The debtors filed chapter 7 and initially did not disclose any possible interests in an inheritance. During the pendency of the chapter 7 case Ms. Scott and her sister hired an attorney to file a will challenge contest to contest their father's will. The chapter 7 was closed as a no-asset case and later re-opened and the potential claim was disclosed. The trustee then substituted into the probate case for the debtor and reached a settlement through a court-ordered mediation. The trustee then filed a motion for bankruptcy court approval of the settlement and the debtors objected. After an evidentiary hearing, the bankruptcy court issued an order approving the settlement agreement which included a finding that by their continuing bad faith the debtor's had forfeited their right to have their voices heard in opposition. The BAP affirmed, finding that the bankruptcy court did not abuse its discretion in approving the settlement agreement.
Kelly, Briscoe, Gorsuch

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