What to Know About Section 541 of the Consolidated Appropriations Act of 2021

By Keila Estevez
Associate, Bernstein-Burkley, P.C.

Keri Ebeck, Esq.
Partner at Bernstein-Burkley, P.C.

On December 27, 2020, the Consolidated Appropriations Act of 2021[1] (the “Appropriations Act”) was enacted. The Appropriations Act was passed in order to supplement the CARES Act, which was enacted on March 27, 2020. The Appropriations Act provides for temporary modifications to various sections of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (as amended, the “Bankruptcy Code”). Section 541 is included among the amended provisions.

Estate/Property of the Estate

Upon the filing for relief under sections 301, 302, or 303 of the Bankruptcy Code, the Bankruptcy Code creates an estate. Generally, the estate consists of the debtor’s assets as of the petition date. The assets classified as “property of the estate” are defined by section 541 of the Bankruptcy Code. Property of the estate is broadly defined by section 541(a) of the Bankruptcy Code.

Property of the Estate Factors

Property of the estate includes the following:

  • All legal and equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. § 541(a)(1);
  • Certain interests of the debtor and the debtor’s spouse in community property as of the commencement of the case. 11 U.S.C. § 541(a)(2);
  • Any interest in property that the trustee recovers under enumerated provisions of the Bankruptcy Code. 11 U.S.C. § 541(a)(3);
  • Any interest in property preserved for or transferred to the estate under Section 510(c) (equitable subordination) or Section 551 (preservation of avoided transfer). 11 U.S.C. § 541(a)(4);
  • Certain interests in property acquired by the debtor or to which an entitlement arises, within 180 days after filing, by bequest, devise inheritance, property settlement, divorce decree, life insurance policy or death benefit plan. 11 U.S.C. § 541(a)(5);
  • Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case. 11 U.S.C. § 541(a)(6); and
  • Any interest in property that the estate acquires after the commencement of the case. 11 U.S.C. § 541(a)(7).

As broadly defined by the Bankruptcy Code, property of the estate includes “all kinds of property, including tangible or intangible”[2].

Property Exclusions

On the other hand, section 541(b) of the Bankruptcy Code provides what assets are excluded as property of the estate. The Appropriations Act amends 541(1)(b) to exclude ‘‘recovery rebates made under section 6428 of the Internal Revenue Code of 1986”[3] from property of the estate. This amendment provides that the pandemic relief payments are not property of the debtor’s estate and therefore may not be used in a bankruptcy case to satisfy obligations of the debtor. Pursuant to the Appropriations Act, the amendment to section 541(b) shall remain in effect for one year from the enactment of the act. Accordingly, the added subsection 541(b)(11) provision shall be stricken on December 27, 2021, unless extended by enactment of a subsequent act.

[1] See H.R. 133, 116th Cong.

[2] O’Dowd v. Trueger (In re O’Dowd), 233 F3d 197, 202 (3d Cir 2000)

[3] H.R. 133, 116th Cong., Div. FF, Title X, § 1001(a)

Written by Bernstein- Burkley, P.C. on March 22, 2021

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