597 B.R. 426
Bankr. N.D. Ill.2019Background
- Debtor (George Burciaga) was laid off from CIVIQ and offered a Separation Agreement providing $83,333.33 in severance (four months’ base pay) consistent with his prepetition employment agreement.
- Debtor filed a Chapter 7 petition on May 8, 2018 before signing the Separation Agreement and before receiving any severance.
- The Separation Agreement (signed postpetition) conditioned severance on several obligations, including: cooperating with CIVIQ (transitioning duties, assisting with audits, testimony, meetings with counsel), returning company property, reaffirming confidentiality/noncompete obligations, refraining from disparagement, and executing a broad release of claims.
- Debtor filed an adversary seeking a determination that the severance is excluded from the estate as postpetition earnings under 11 U.S.C. § 541(a)(6). The chapter 7 trustee argued the severance is property of the estate under § 541(a)(1) as sufficiently rooted in the prepetition past.
- Cross-motions for judgment on the pleadings were fully briefed; facts are undisputed and the court applied the Seventh Circuit Rule 12(c) standard.
Issues
| Issue | Debtor's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether the Severance Pay is property of the estate or excluded as postpetition earnings under § 541(a)(6) | Severance is contingent on postpetition services/conditions and thus is postpetition earnings excluded from the estate | Severance is sufficiently rooted in the prepetition employment and termination and therefore is estate property; required abstentions/releases are not affirmative services | Court held severance is hybrid: 50% is estate property under § 541(a)(1) and 50% is excluded postpetition earnings under § 541(a)(6) (pro rata allocation) |
Key Cases Cited
- Segal v. Rochelle, 382 U.S. 375 (Sup. Ct.) (established the "sufficiently rooted in the pre-bankruptcy past" test for § 541 property)
- United States v. Whiting Pools, 462 U.S. 198 (Sup. Ct.) (broad construction of property of the estate)
- In re Haynes, 679 F.2d 718 (7th Cir.) (military retiree pay could be compensation for continuing duties; affirmative postpetition duties can make payments more like wages)
- In re Prince, 85 F.3d 314 (7th Cir.) (§ 541(a)(6) exception interpreted narrowly to earnings from services actually performed)
- In re Stinnett, 465 F.3d 309 (7th Cir.) (earnings obtained solely by inability to perform services are not equivalent to earnings from services performed)
- In re Meyers, 616 F.3d 626 (7th Cir.) (adopted "sufficiently rooted" approach in allocating mixed-source proceeds)
- In re Jokiel, 447 B.R. 868 (Bankr. N.D. Ill.) (severance largely prepetition; abstaining from action/noncompete not treated as postpetition services)