Government payments received by a debtor postpetition are often tied to prepetition events, presenting the issue of whether a legal or equitable interest existed as of the commencement of the case under § 541 of the Bankruptcy Code. The Fifth, Eighth, Ninth, and Eleventh Circuits have held that a debtor has no legal or equitable interest in a government payment until the legislation authorizing the payment is signed into law. These decisions, however, failed to articulate a clear standard, as evidenced by recent case law. The issue of when a government payment becomes property of the estate has been particularly contentious in the crop disaster payment context. A new program, the Supplemental Revenue Assistance Program (SURE), presents a novel fact pattern. In SURE, the Secretary of Agriculture must designate the county where a crop was lost as a disaster county before a farmer can qualify for payment. Therefore, when a bankruptcy petition is filed, payment may still be contingent upon an act within the agency's discretion. This Comment will argue that a government payment becomes property of the estate when the payment is 'absolutely owed,' meaning the payment is no longer contingent in any way. First, the case law reveals no clear standard as to when a government payment becomes property of the estate under § 541. The right to setoff in § 553 has a clearer rule, a contrast that can help guide analysis. Second, recent cases regard the statutory authorization date as determinative, but this approach runs contrary to the Code and relevant case law, for §§ 541 and 553 require a more nuanced factual inquiry. Third, administrative law dictates that a government payment becomes an entitlement for purposes of due process when legal sources create enforceable standards that guide an agency's discretion. This standard should control when agency discretion is an issue.
Government Payments: When do They Become Property of the Estate?,
Emory Bankr. Dev. J.
Available at: https://scholarlycommons.law.emory.edu/ebdj/vol30/iss2/6