In the Matter of Mwangi

Property of the bankruptcy estate remains estate property from the filing of the petition until the 30-day objection deadline from the section 341(a) meeting of creditors has run; and, during this time the debtor has no right to possess or control that property.

Eric Mwangi and Pauline Mwicharo (“Debtors”) filed for Chapter 7 bankruptcy relief on August 3, 2009, creating a bankruptcy estate, controlled by the trustee. Under section 541(a)(1) of the Bankruptcy Code, the bankruptcy estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” Wells Fargo placed a “temporary administrative pledge” on 4 accounts with Debtors and sent a letter to the trustee requesting instructions as to how to dispose of the funds in the accounts. Originally, the Debtors did not claim any of the Wells Fargo account funds as exempt under the Code. Later, the Debtors amended their schedule “C” and claimed an exemption of 75% the value of each account with Wells Fargo. The Debtors then filed suit alleging that they were injured by the “temporary administrative pledge” placed on the accounts and that Wells Fargo had willfully violated the stay affected by section 362 of the Bankruptcy Code. The bankruptcy court dismissed the suit noting that: (1) the automatic stay applies only to property of the bankruptcy estate, and exempt property never becomes estate property; and, (2) Wells Fargo took no action to collect, assess, or recover any prepetition claim against the Debtors. The Ninth Circuit held that the account funds remained a part of the bankruptcy estate controlled by the trustee, from the time the petition was filed until October 19, 2009, when the timeframe for objections to exemptions had run. The panel stated that the Debtors failed to allege a plausible injury before and after the objection timeframe because prior to the funds revesting to the Debtors, they were not under the Debtors' control, but rather the trustee’s and after they revested to the Debtors they were no longer protected by section 362 of the Bankruptcy Code. AFFIRMED.