The debtor’s anticipated bonus was not part of the bankruptcy estate where its issuance was discretionary and the employee had no enforceable interest in it at the time of the petition. In re Bronikowski, No. 16-50719 (Bankr. W.D. N.C. June 16, 2017).
Vincent and Lisa Bronikowski filed a chapter 7 petition in November, 2016. In their schedules, Ms. Bronikowski listed, and claimed an exemption for, an anticipated bonus from her employer for the 2016 year. Ms. Bronikowski’s employee handbook provided that the employer had “full and final discretionary authority to interpret and administer the Plan as well as determine the amount, if any, and payment of all incentive bonuses, awards and other compensation pursuant to the Plan.” The trustee objected to the exemption. The Bronikowskis amended their schedules asserting that the anticipated bonus should not be deemed property of the bankruptcy estate.
The court began its analysis with basic principles of bankruptcy property law. State law governs a debtor’s interest in property and, although section 541 encompasses a broad array of property, the bankruptcy estate cannot claim rights greater than those held by the debtor at the commencement of the case, nor can it expand a debtor’s rights against a third party. Post-petition earnings generally do not enter the chapter 7 estate, though the court noted that a bonus earned prior to filing and actually received during the pendency of the bankruptcy would be considered estate property.
The court looked to the nature of Ms. Bronikowski’s interest in the bonus at the time of the petition, resting its decision on the distinction between a “contingent” interest in property and a mere “expectation.” Generally, in the case of a contingent interest, a debtor has a right to demand payment upon the occurrence of the contingency. Therefore, a debtor holding a contingent interest has an enforceable property right that passes into the bankruptcy estate. A mere expectation, on the other hand, is not an enforceable interest and does not pass into the bankruptcy estate.
Discussing decisions out of other courts, the Bronikowski court noted that in Vogel v. Palmer (In re Palmer), 57 B.R. 332 (Bankr. W.D. Va. 1986), the anticipated bonus, while relating to pre-petition employment, depended on the debtor’s remaining employed and performing satisfactorily post-petition and was therefore a property interest arising post-petition. Other cases, like Seaver v. Klein-Swanson (In re Klein-Swanson), 488 B.R. 628, 633 (B.A.P. 8th Cir. 2013), have relied on the discretionary nature of the bonus without regard to whether post-petition actions are necessary. Notwithstanding some differences in reasoning, the fact that at the time of the bankruptcy petition the debtors had no enforceable right to the bonus, was key to these decisions.
Applying these principles to the facts, the court found that, due to its discretionary nature, Ms. Bronikowski did not have an enforceable property interest in her bonus and that it did not enter the bankruptcy estate. For that reason, the trustee’s objection to exemption was moot.
Bronikowski Bankr WD NC opinion June 2017
Tags: Property of Estate
