511 B.R. 107
Bankr. C.D. Ill.2014Background
- Three chapter 7 debtors (Powell, Hobart, Doyle) were Deere & Company employees who filed in mid-2013 during Deere’s 2013 profit‑sharing Plan Year.
- Under a collective bargaining profit‑sharing plan, benefit amounts are computed by hours worked in the Plan Year × average hourly rate × profit percentage × 50%; payment is due by Jan. 15 following the Plan Year.
- Eligibility requires being an active employee (or on leave/layoff) on the last day of the Plan Year; the plan contains a nonassignability clause and no express trust corpus or fiduciary duties.
- The chapter 7 trustee moved for turnover of a prorated share of the January 2014 profit‑sharing payments; debtors argued those future payments were not estate property.
- The court consolidated the matters, applied the Segal “sufficiently rooted in the prebankruptcy past” test together with 11 U.S.C. § 541(a)(6), and held the prepetition portion of the benefit belongs to the estate.
Issues
| Issue | Trustee's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Are future profit‑sharing payments property of the bankruptcy estate? | Yes — the contractual right arose prepetition and is a contingent property interest under § 541. | No — payment was contingent (profit, continued employment) and thus not an enforceable prepetition interest. | Held: Yes; contingent interests can be estate property if rooted in prepetition past. |
| Do postpetition services bar inclusion under § 541(a)(6)? | No — only the portion attributable to postpetition services is excluded; prepetition portion is estate property. | Yes — payments reflect postpetition work and earnings and thus are not estate property. | Held: Apply an allocation; exclude postpetition earnings under § 541(a)(6). |
| Does the plan’s nonassignability/"not subject to debts" language create a trust or remove the interest from the estate? | Debtors: the restriction makes the interest nonassignable and trustlike, except from creditors. | Trustee: Contract language cannot override § 541; no trust exists (no corpus, no fiduciary duties). | Held: No trust; § 541(c)(2) inapplicable; restriction does not prevent inclusion in estate. |
| How should the prepetition share be measured? | Trustee: pro rata by days of the Plan Year elapsed at filing. | Debtors: pro rata may be inappropriate if most of the benefit was earned postpetition; contest allocation. | Held: Use pro rata by days (days from Plan Year start to petition / total days), subject to debtor proof of a different allocation. |
Key Cases Cited
- BFP v. Resolution Trust Corp., 511 U.S. 531 (Supreme Court) (bankruptcy policy balance and fresh start principle)
- Segal v. Rochelle, 382 U.S. 375 (Supreme Court) (test whether postpetition receipts are "sufficiently rooted in the prebankruptcy past")
- Matter of Yonikus, 996 F.2d 866 (7th Cir.) (§ 541 includes contingent and future interests)
- In re Meyers, 616 F.3d 626 (7th Cir.) (applying Segal and pro rata allocation principles)
- In re Booth, 260 B.R. 281 (6th Cir. BAP) (profit‑sharing payment sufficiently rooted prepetition and includable in estate)
- Parks v. Dittmar (In re Dittmar), 618 F.3d 1199 (10th Cir.) (distinguishing discretionary bonuses from nondiscretionary profit‑sharing; contingencies like profit/continued employment do not make an interest a mere expectancy)