Case Summary:
The Chapter 7 Trustee filed an adversary proceeding against 83 trusts and entities, seeking a declaration that certain property was property of the bankruptcy estate pursuant to 11 U.S.C. § 541. The Debtor had a real estate business that involved purchasing distressed real estate and either selling it at a profit, leasing it to a third party, or entering into some other contractual arrangement. The Debtor structured his business through a web of trusts, partnerships, sole proprietorships, and other entities. The Trustee contended that the real estate, contracts, bank accounts, and other related assets held in the name of the trusts and entities were wholly owned and solely controlled by the Debtor, and that it was all property of the bankruptcy estate. After a five-day trial, the Court found that the assets held by 77 of the trusts and entities named in the Trustee’s complaint were property of the bankruptcy estate. The Court determined that any assets owned by the debtor under a fictitious name, a “d/b/a,” or a sole proprietorship were not held by a separate legal person and were therefore property of the estate. In addition, the Court concluded that the trustee could reach the assets of the trusts because none of the trusts was validly created; even if the trusts were valid, the Debtor had the power to revoke the trusts; and the trusts were alter egos of the Debtor. The Court also determined that the partnership form could be disregarded because the partnerships were the alter egos of the Debtor and the Debtor used the entities to shield assets from his creditors.

Statute/Rule References:
11 U.S.C. § 541

Key Terms:
Property of the Estate
Sole Proprietorship
Partnership
Trust Property
Revocability of Trusts
Piercing of Trust Form