11 U.S.C. § 542 — Turnover of property to the estate

Page 165 TITLE 11—BANKRUPTCY § 542 Subsec. (b)(7). Pub. L. 109–8, § 323, added par. (7). Subsec. (b)(8). Pub. L. 109–8, § 1230, added par. (8). Subsec. (b)(9). Pub. L. 109–8, § 225(a)(1)(B), redesig- nated par. (5) as (9). Subsec. (e). Pub. L. 109–8, § 225(a)(2), added subsec. (e). Subsec. (f). Pub. L. 109–8, § 1221(c), added subsec. (f). 1994—Subsec. (b)(4). Pub. L. 103–394, § 208(b), des- ignated existing provisions of subpar. (A) as cl. (i) of subpar. (A), redesignated subpar. (B) as cl. (ii) of sub- par. (A), substituted ‘‘the interest referred to in clause (i)’’ for ‘‘such interest’’, substituted ‘‘; or’’ for period at end of cl. (ii), and added subpar. (B). Pub. L. 103–394, § 223(2), which directed the amend- ment of subsec. (b)(4) by striking out period at end and inserting ‘‘; or’’, was executed by inserting ‘‘or’’ after semicolon at end of subsec. (b)(4)(B)(ii), as added by Pub. L. 103–394, § 208(b)(3), to reflect the probable intent of Congress. Subsec. (b)(5). Pub. L. 103–394, § 223, added par. (5). 1992—Subsec. (b). Pub. L. 102–486 added par. (4) and closing provisions. 1990—Subsec. (b)(3). Pub. L. 101–508 added par. (3). 1984—Subsec. (a). Pub. L. 98–353, § 456(a)(1), (2), struck out ‘‘under’’ after ‘‘under’’ and inserted ‘‘and by whom- ever held’’ after ‘‘located’’. Subsec. (a)(3). Pub. L. 98–353, § 456(a)(3), inserted ‘‘329(b), 363(n),’’. Subsec. (a)(5). Pub. L. 98–353, § 456(a)(4), substituted ‘‘Any’’ for ‘‘An’’. Subsec. (a)(6). Pub. L. 98–353, § 456(a)(5), substituted ‘‘or profits’’ for ‘‘and profits’’. Subsec. (b). Pub. L. 98–353, § 363(a), amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: ‘‘Property of the estate does not include any power that the debtor may only exercise solely for the benefit of an entity other than the debtor.’’ Subsec. (c)(1). Pub. L. 98–353, § 456(b)(1), inserted ‘‘in an agreement, transfer, instrument, or applicable non- bankruptcy law’’. Subsec. (c)(1)(B). Pub. L. 98–353, § 456(b)(2), substituted ‘‘taking’’ for ‘‘the taking’’, and inserted ‘‘before such commencement’’ after ‘‘custodian’’. Subsec. (d). Pub. L. 98–353, § 456(c), inserted ‘‘(1) or (2)’’ after ‘‘(a)’’. Subsec. (e). Pub. L. 98–353, § 456(d), struck out subsec. (e) which read as follows: ‘‘The estate shall have the benefit of any defense available to the debtor as against an entity other than the estate, including stat- utes of limitation, statutes of frauds, usury, and other personal defenses. A waiver of any such defense by the debtor after the commencement of the case does not bind the estate.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2020 AMENDMENT Pub. L. 116–260, div. FF, title X, § 1001(a)(2), Dec. 27, 2020, 134 Stat. 3216, provided that the amendment made by section 1001(a)(2) is effective on the date that is 1 year after Dec. 27, 2020. EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 applicable with re- spect to cases commenced under this title on or after Dec. 19, 2014, see section 104(d) of Pub. L. 113–295, set out as a note under section 521 of this title. EFFECTIVE DATE OF 2005 AMENDMENT Amendment by section 1221(c) of Pub. L. 109–8 appli- cable to cases pending under this title on Apr. 20, 2005, or filed under this title on or after Apr. 20, 2005, with certain exceptions, see section 1221(d) of Pub. L. 109–8, set out as a note under section 363 of this title. Amendment by sections 225(a), 323, 1212, and 1230 of Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. 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 1992 AMENDMENT Amendment by Pub. L. 102–486 effective Oct. 24, 1992, but not applicable with respect to cases commenced under this title before Oct. 24, 1992, see section 3017(c) of Pub. L. 102–486, 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. Court Rules and Judicial Documents ADJUSTMENT OF DOLLAR AMOUNTS The dollar amounts specified in this section were ad- justed by notices of the Judicial Conference of the United States pursuant to section 104 of this title as follows: By notice dated Jan. 31, 2022, 87 F.R. 6625, effective Apr. 1, 2022, in subsec. (b), dollar amount ‘‘6,825’’ was adjusted to ‘‘7,575’’ each time it appeared. See notice of the Judicial Conference of the United States set out as a note under section 104 of this title. By notice dated Feb. 5, 2019, 84 F.R. 3488, effective Apr. 1, 2019, in subsec. (b)(5)(C), (6)(C), (10)(C), dollar amount ‘‘6,425’’ was adjusted to ‘‘6,825’’. By notice dated Feb. 16, 2016, 81 F.R. 8748, effective Apr. 1, 2016, in subsec. (b)(5)(C), (6)(C), dollar amount ‘‘6,225’’ was adjusted to ‘‘6,425’’. By notice dated Feb. 12, 2013, 78 F.R. 12089, effective Apr. 1, 2013, in subsec. (b)(5)(C), (6)(C), dollar amount ‘‘5,850’’ was adjusted to ‘‘6,225’’. By notice dated Feb. 19, 2010, 75 F.R. 8747, effective Apr. 1, 2010, in subsec. (b)(5)(C), (6)(C), dollar amount ‘‘5,475’’ was adjusted to ‘‘5,850’’. By notice dated Feb. 7, 2007, 72 F.R. 7082, effective Apr. 1, 2007, in subsec. (b)(5)(C), (6)(C), dollar amount ‘‘5,000’’ was adjusted to ‘‘5,475’’. § 542. Turnover of property to the estate (a) Except as provided in subsection (c) or (d) of this section, an entity, other than a custo- dian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and ac- count for, such property or the value of such property, unless such property is of incon- sequential value or benefit to the estate. (b) Except as provided in subsection (c) or (d) of this section, an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee, except to the extent that such debt may be off- set under section 553 of this title against a claim against the debtor. (c) Except as provided in section 362(a)(7) of this title, an entity that has neither actual no- tice nor actual knowledge of the commencement of the case concerning the debtor may transfer property of the estate, or pay a debt owing to the debtor, in good faith and other than in the manner specified in subsection (d) of this sec- tion, to an entity other than the trustee, with Page 166 TITLE 11—BANKRUPTCY § 543 the same effect as to the entity making such transfer or payment as if the case under this title concerning the debtor had not been com- menced. (d) A life insurance company may transfer property of the estate or property of the debtor to such company in good faith, with the same ef- fect with respect to such company as if the case under this title concerning the debtor had not been commenced, if such transfer is to pay a premium or to carry out a nonforfeiture insur- ance option, and is required to be made auto- matically, under a life insurance contract with such company that was entered into before the date of the filing of the petition and that is property of the estate. (e) Subject to any applicable privilege, after notice and a hearing, the court may order an at- torney, accountant, or other person that holds recorded information, including books, docu- ments, records, and papers, relating to the debtor’s property or financial affairs, to turn over or disclose such recorded information to the trustee. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2595; Pub. L. 98–353, title III, § 457, July 10, 1984, 98 Stat. 376; Pub. L. 103–394, title V, § 501(d)(16), Oct. 22, 1994, 108 Stat. 4146.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 542(a) of the House amendment modifies simi- lar provisions contained in the House bill and the Sen- ate amendment treating with turnover of property to the estate. The section makes clear that any entity, other than a custodian, is required to deliver property of the estate to the trustee or debtor in possession whenever such property is acquired by the entity dur- ing the case, if the trustee or debtor in possession may use, sell, or lease the property under section 363, or if the debtor may exempt the property under section 522, unless the property is of inconsequential value or ben- efit to the estate. This section is not intended to re- quire an entity to deliver property to the trustee if such entity has obtained an order of the court author- izing the entity to retain possession, custody or control of the property. The House amendment adopts section 542(c) of the House bill in preference to a similar provision con- tained in section 542(c) of the Senate amendment. Pro- tection afforded by section 542(c) applies only to the transferor or payor and not to a transferee or payee re- ceiving a transfer or payment, as the case may be. Such transferee or payee is treated under section 549 and sec- tion 550 of title 11. The extent to which the attorney client privilege is valid against the trustee is unclear under current law and is left to be determined by the courts on a case by case basis. SENATE REPORT NO. 95–989 Subsection (a) of this section requires anyone holding property of the estate on the date of the filing of the petition, or property that the trustee may use, sell, or lease under section 363, to deliver it to the trustee. The subsection also requires an accounting. The holder of property of the estate is excused from the turnover re- quirement of this subsection if the property held is of inconsequential value to the estate. However, this pro- vision must be read in conjunction with the remainder of the subsection, so that if the property is of incon- sequential monetary value, yet has a significant use value for the estate, the holder of the property would not be excused from turnover. Subsection (b) requires an entity that owes money to the debtor as of the date of the petition, or that holds money payable on demand or payable on order, to pay the money to the order of the trustee. An exception is made to the extent that the entity has a valid right of setoff, as recognized by section 553. Subsection (c) provides an exception to subsections (a) and (b). It protects an entity that has neither actual notice nor actual knowledge of the case and that trans- fers, in good faith, property that is deliverable or pay- able to the trustee to someone other than to the estate or on order of the estate. This subsection codifies the result of Bank of Marin v. England, 385 U.S. 99 (1966), but does not go so far as to permit bank setoff in violation of the automatic stay, proposed 11 U.S.C. 362(a)(7), even if the bank offsetting the debtor’s balance has no knowledge of the case. Subsection (d) protects life insurance companies that are required by contract to make automatic premium loans from property that might otherwise be property of the estate. Subsection (e) requires an attorney, accountant, or other professional that holds recorded information re- lating to the debtor’s property or financial affairs, to surrender it to the trustee. This duty is subject to any applicable claim of privilege, such as attorney-client privilege. It is a new provision that deprives account- ants and attorneys of the leverage that they have today, under State law lien provisions, to receive pay- ment in full ahead of other creditors when the informa- tion they hold is necessary to the administration of the estate. Editorial Notes AMENDMENTS 1994—Subsec. (e). Pub. L. 103–394 substituted ‘‘to’’ for ‘‘to to’’ after ‘‘financial affairs,’’. 1984—Subsec. (e). Pub. L. 98–353 inserted ‘‘to turn over or’’ before ‘‘disclose’’. 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. § 543. Turnover of property by a custodian (a) A custodian with knowledge of the com- mencement of a case under this title concerning the debtor may not make any disbursement from, or take any action in the administration of, property of the debtor, proceeds, product, off- spring, rents, or profits of such property, or property of the estate, in the possession, cus- tody, or control of such custodian, except such action as is necessary to preserve such property. (b) A custodian shall— (1) deliver to the trustee any property of the debtor held by or transferred to such custo- dian, or proceeds, product, offspring, rents, or profits of such property, that is in such custodian’s possession, custody, or control on the date that such custodian acquires knowl- edge of the commencement of the case; and (2) file an accounting of any property of the debtor, or proceeds, product, offspring, rents, or profits of such property, that, at any time,