531 B.R. 537
Bankr. D.N.J.2015Background
- Debtor is the Blanche Zwerdling Revocable Living Trust, filed Feb 20, 2015 for Chapter 11 relief.
- Movant Champion and three fellow judgment creditors move to dismiss as the Debtor is not an eligible debtor under §109(a) and the petition was filed in bad faith.
- Todd Trombetta, granddaughter’s husband, is the Substitute Trustee and represents the Debtor.
- Trust was created in 1998; initially funded with assets including three parcels of real property and various bank accounts; sole Trustee was Zwerdling during life.
- Beneficiary is Cheryl Trombetta; trust documents give broad discretionary powers to the Trustee and contemplate post-death distributions.
- Probate proceedings from 2009–2015 supervised the Trust; fees were awarded against Zwerdling and the Trust, with outstanding claims and a court-ordered sale of the Union Avenue Property to pay creditors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Trust is a 'business trust' eligible for relief under §101(9)(A)(v). | Champion argues the Trust is not a business trust and thus ineligible. | Todd contends a post-death change in character makes the Trust a business trust. | Not a business trust; ineligible for bankruptcy relief. |
| Whether a post-death 'change in character' can convert a testamentary/revocable trust into a business trust. | Not explicitly applicable; trust remained non-business despite management changes. | Post-death management by a successor trustee created business-like operations for profit. | No, the change is not sufficient to render the trust a business trust. |
| Whether the petition should be dismissed on bad-faith grounds. | Argues bad faith due to avoidance of probate directives and timing of the filing. | Argues the petition is consistent with a business-trust objective and should be treated as such. | Court did not reach bad-faith ruling because the trust is not a business trust and is ineligible. |
| Whether probate supervision and interwoven estate issues render the bankruptcy petition improper in this court. | Prosecution belongs in probate court with ongoing fee disputes and property-sale directives. | Bankruptcy court should resolve the debt-creditor issues independent of probate status. | Court dismissed on basis of ineligibility; probate concerns remain in probate court. |
Key Cases Cited
- In re Secured Equipment Trust, 38 F.3d 86 (2d Cir. 1994) (no uniform standard for business trust; multi-factor framework)
- In re Kenneth Allen Knight Trust, 303 F.3d 671 (6th Cir. 2002) (primary purpose test; fact-specific analysis essential)
- Greate Bay Hotel & Casino, Inc. v. City of Atlantic City, 264 N.J. Super. 213, 624 A.2d 102 (Ch. Div. 1993) (case discusses business trust status; federal-issues scope noted)
- In re Parade Realty, Inc., 134 B.R. 7 (Bankr. D. Haw. 1991) (test for business trust includes transferability, business purpose)
- In re Jin Suk Kim Trust, 464 B.R. 697 (Bankr. D. Md. 2011) (profit-maximizing management can establish business-trust characteristics)