11 U.S.C. § 551 — Automatic preservation of avoided transfer

Page 181 TITLE 11—BANKRUPTCY § 552 Subsec. (d)(1)(B). Pub. L. 98–353, § 465(b)(2), substituted ‘‘the value of such property’’ for ‘‘value’’. Subsec. (d)(2)(D). Pub. L. 98–353, § 465(b)(3), sub- stituted ‘‘payment of any debt secured by a lien on such property that is superior or equal to the rights of the trustee; and’’ for ‘‘payment of any debt secured by a lien on such property.’’ Subsec. (d)(2)(E), (F). Pub. L. 98–353, § 465(b)(3), (4), struck out subpar. (E) ‘‘discharge of any lien against such property that is superior or equal to the rights of the trustee; and’’ and redesignated subpar. (F) as (E). Subsec. (e)(1). Pub. L. 98–353, § 465(c), substituted ‘‘or’’ for ‘‘and’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 551. Automatic preservation of avoided transfer Any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or any lien void under section 506(d) of this title, is pre- served for the benefit of the estate but only with respect to property of the estate. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2602.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 551 is adopted from the House bill and the al- ternative in the Senate amendment is rejected. The section is clarified to indicate that a transfer avoided or a lien that is void is preserved for the benefit of the estate, but only with respect to property of the estate. This prevents the trustee from asserting an avoided tax lien against after acquired property of the debtor. SENATE REPORT NO. 95–989 This section is a change from present law. It specifies that any avoided transfer is automatically preserved for the benefit of the estate. Under current law, the court must determine whether or not the transfer should be preserved. The operation of the section is automatic, unlike current law, even though preserva- tion may not benefit the estate in every instance. A preserved lien may be abandoned by the trustee under proposed 11 U.S.C. 554 if the preservation does not ben- efit the estate. The section as a whole prevents junior lienors from improving their position at the expense of the estate when a senior lien is avoided. § 552. Postpetition effect of security interest (a) Except as provided in subsection (b) of this section, property acquired by the estate or by the debtor after the commencement of the case is not subject to any lien resulting from any se- curity agreement entered into by the debtor be- fore the commencement of the case. (b)(1) Except as provided in sections 363, 506(c), 522, 544, 545, 547, and 548 of this title, if the debt- or and an entity entered into a security agree- ment before the commencement of the case and if the security interest created by such security agreement extends to property of the debtor ac- quired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest ex- tends to such proceeds, products, offspring, or profits acquired by the estate after the com- mencement of the case to the extent provided by such security agreement and by applicable non- bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. (2) Except as provided in sections 363, 506(c), 522, 544, 545, 547, and 548 of this title, and not- withstanding section 546(b) of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such se- curity agreement extends to property of the debtor acquired before the commencement of the case and to amounts paid as rents of such property or the fees, charges, accounts, or other payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties, then such security interest extends to such rents and such fees, charges, ac- counts, or other payments acquired by the es- tate after the commencement of the case to the extent provided in such security agreement, ex- cept to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2602; Pub. L. 98–353, title III, § 466, July 10, 1984, 98 Stat. 380; Pub. L. 103–394, title II, § 214(a), Oct. 22, 1994, 108 Stat. 4126; Pub. L. 109–8, title XII, § 1204(2), Apr. 20, 2005, 119 Stat. 194.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 552(a) is derived from the House bill and the alternative provision in the Senate amendment is re- jected. Section 552(b) represents a compromise between the House bill and the Senate amendment. Proceeds coverage, but not after acquired property clauses, are valid under title 11. The provision allows the court to consider the equities in each case. In the course of such consideration the court may evaluate any expenditures by the estate relating to proceeds and any related im- provement in position of the secured party. Although this section grants a secured party a security interest in proceeds, product, offspring, rents, or profits, the section is explicitly subject to other sections of title 11. For example, the trustee or debtor in possession may use, sell, or lease proceeds, product, offspring, rents or profits under section 363. SENATE REPORT NO. 95–989 Under the Uniform Commercial Code, article 9, credi- tors may take security interests in after-acquired prop- erty. Section 552 governs the effect of such a prepetition security interest in postpetition property. It applies to all security interests as defined in section 101(37) of the bankruptcy code, not only to U.C.C. secu- rity interests. As a general rule, if a security agreement is entered into before the commencement of the case, then prop- erty that the estate acquires is not subject to the secu- rity interest created by a provision in the security agreement extending the security interest to after-ac- quired property. Subsection (b) provides an important exception consistent with the Uniform Commercial Code. If the security agreement extends to proceeds, product, offspring, rents, or profits of the property in question, then the proceeds would continue to be sub- ject to the security interest pursuant to the terms of