453 B.R. 802
Bankr. E.D.N.C.2011Background
- BB & T holds a valid security interest in debtor's accounts, inventory, equipment, and general intangibles, with a UCC filing in 2008.
- BB & T pre-petition levy on the accounts occurred between November 2–5, 2010, directing customers to pay BB & T directly.
- Debtor filed Chapter 11 on November 8, 2010; BB & T asserts accounts were not estate property due to the levy.
- Debtor values accounts receivable at $313,070 on schedules and seeks to use cash collateral under 11 U.S.C. § 363.
- Interim orders granted use of cash collateral; the court must decide whether accounts are property of the estate.
- Court concludes accounts receivable are property of the estate, subject to BB & T’s lien and adequate protection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the pre-petition levy transfer ownership of the accounts to BB & T? | Biedermann retained estate ownership and redemption rights. | BB & T’s levy transfers ownership of the accounts. | Ownership did not transfer; accounts remain property of the estate. |
| Are the debtor's accounts receivable property of the estate under § 541? | Accounts are estate property recoverable under turnover § 542 and usable under § 363. | Levy interrupts debtor’s property interests; not estate property. | Accounts receivable are property of the estate. |
| May the debtor use cash collateral to operate under § 363 despite the levy? | Adequate protection exists and property is estate asset. | Levy deprives estate of assets; use is improper without protection. | Yes, with adequate protection; use permitted. |
| Does BB & T have adequate protection given its lien in light of the debtor’s reorganization goals? | Equity cushion exists; protection is adequate. | Levy undermines recovery; protection insufficient. | BB & T adequately protected; residency of cash collateral allowed. |
Key Cases Cited
- Cross Electric Co. v. United States, 664 F.2d 1218 (4th Cir. 1981) (levied accounts not necessarily estate property; redemption rights exist)
- Whiting Pools, Inc. v. United States, 462 U.S. 198 (U.S. 1983) (property seized pre-petition becomes estate property; §542 governs)
- In re Eisenbarger, 160 B.R. 542 (Bankr.E.D.Va.1993) (recognizes redemption rights and estate interests post-levy)
- In re AIC Indus., Inc., 83 B.R. 774 (Bankr.D. Colo.1988) (estate rights in property subject to liens and turnover)
- In re Contractors Equip. Supply Co., 861 F.2d 241 (9th Cir. 1988) (adequate protection and use of property under § 363 in Chapter 11)
- In re Challenge Air Int'l, Inc., 952 F.2d 384 (11th Cir. 1992) (interpretation of estate property and creditors' rights post-levy)
- Boutilier, 196 B.R. 323 (Bankr.W.D.Va.1996) (discussion of redemption rights as estate property)