Debtor in Bankruptcy Keeps Post-Petition Mortgage Settlement Funds

MacKenzie v. Neidorf (IN RE NEIDORF; 9TH CIR. BAP)
Chapter 7 debtor Carrie Margaret Neidorf (Debtor)scheduled her real property (Residence) as an asset of her estate. There was no equity in the property. Postpetition, the lender obtained an unopposed relief from stay order and foreclosed on the property. Years after the foreclosure, but while her bankruptcy case was still open, Debtor received a postpetition payment in the amount of $31,250 (Foreclosure Payment). The payment was made to Debtor pursuant to a national settlement between banking regulators and certain financial institutions, including Bank of America (B of A). Debtor disclosed her receipt of the Foreclosure Payment to Robert A. MacKenzie, the chapter 7 trustee (Trustee). Trustee then filed a Motion to Compel Debtor to Turnover Estate Property (Turnover Motion), asserting that the Foreclosure Payment was property of the estate under § 541(a)(7). The bankruptcy court denied his motion, and this appeal followed. For the reasons discussed below, we AFFIRM.
The result is that, in the Ninth Circuit, the debtor is able to keep funds that become available after the bankruptcy is filed.  This is a great result for individuals.  My congratulations to Ms. Neidorf’s attorney Kenneth Neeley.

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