Absolutely Assigned Rents: Are They Property of a Bankruptcy Estate?

As a general rule, all property that a debtor holds at the time of a bankruptcy filing becomes part of the debtor’s estate to be administered by the trustee for the benefit of creditors. See 11 U.S.C. § 541. However, in a recent ruling by the U.S. District Court for the District of New Jersey, the court held that rents absolutely assigned prepetition may be an exception to this general rule.

In In re Cordova, 500 B.R. 701 (D.N.J. 2013), the court ruled that, once a right to receive rents is absolutely assigned, the rents are no longer part of the debtor’s estate, regardless of whether the assignee was actively pursuing the rents at the time of the bankruptcy filing. In Cordova, the Chapter 7 trustee of a bankruptcy estate appealed from an order of the United States Bankruptcy Court for the District of New Jersey denying his motion to turn over rents that the debtors were receiving from a property they owned. The bankruptcy court found that the rents were not part of the debtors’ estate because they had been absolutely assigned to the lender pre-petition. The district court affirmed.