Contingent Interest in Commissions Earned Post-Petition Can Be Bankruptcy Estate Property

In re Anderson, BAP No. ID-16-13156-JuFB, filed on August 11, 2017, the Ninth Circuit Bankruptcy Appellate Panel upheld the Bankruptcy Court's finding that the debtors' contingent real estate commissions were estate property. The debtors were real estate agents. When they filed their bankruptcy petition, they had 13 transactions which were under contract and in escrow but had not yet closed. Under Idaho state law, the debtors were not entitled to payment of their commissions until the transaction closed. The closings did not occur until after the filing of the bankruptcy. The Bankruptcy Court found, and the BAP agreed, that because the interest in the commissions was sufficiently rooted in the pre-bankruptcy past and especially because the debtors were unable to show that any of the acts necessary to earn the commissions were performed post-petition, the commissions were property of the bankruptcy estate.

The debtors tried to argue that the commissions were post-petition earnings which are not property of the bankruptcy estate under Section 541(a)(6) because the commissions were paid to their corporation which then paid the debtors a salary. The BAP found, however, that since only individuals could be real estate agents under state law, the commissions could not be a salary from the debtors' corporation.

If you have further questions about the above, please contact Melissa Lowe or any of the attorneys at Shulman Bastian Friedman & Bui LLP at 949-340-3400.

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