Appellant, Gary E. Jubber, Trustee (the “Trustee”), appeals the bankruptcy court’s decision denying his motion to require Appellees, Jose L. Ruiz and Carrie Ruiz (“Debtors”), to turn over estate assets.
The bankruptcy court, while recognizing a split in authority on this issue, held that the Trustee could not recover from Debtors the amount that was in the checking account on the date of filing. Although the court recognized that the Debtors’ interest in the account on the date of filing became property of the estate, it dismissed the Trustee’s contention that the funds in the checking account constituted estate property. Instead, the bankruptcy court held that the checking account merely constituted a debt owed by the bank to the Debtors, and it was the right to collect on this debt, rather than the funds themselves, that constituted property of the estate.
The bankruptcy court held that Debtors had constructively turned over this property by disclosing to the Trustee in their schedules the existence of the checking account. The court then held that the Debtors were under no duty to collect on debts owed to the bankruptcy estate, and that it was the Trustee’s obligation to collect on that debt, either directly from Zions Bank if he sought turnover, or from the payees of the funds through avoidance proceedings. Based on these findings, the bankruptcy court denied the motion for turnover.
Debtors most certainly had “control” over the funds “during the case,” as Section 542(a) of the Bankruptcy Code requires. At any time prior to the filing of the petition, and up to the time the funds were withdrawn by the third parties to whom Debtors had written pre-petition checks, Debtors had the ability to withdraw all funds in their account, to close the account, to stop payment on any outstanding checks, and to transfer the funds from the account to another account. There can really be no question that these Debtors had nearly total control over these funds on the date they filed the petition, and this control extended through the following Monday for one check, Tuesday for two checks, and Wednesday for the last of those checks. This leaves the final question of whether that control, which lasted for at least two days after the case was filed, constitutes control “during the case,” which is required by Section 542(a).
Although a handful of courts have held that an entity must have current possession of the actual funds at the time the trustee makes the demand for turnover, most courts have held that the requirement for turnover under Section 542(a) should apply to any entity that held the estate’s property at any time during the pendency of the case.
The Court reaffirmed its holding in In re Majors, 330 B.R. 880, 2005 WL 2077497 (10th Cir. BAP 2005) by recognizing that current possession of estate property is not a required element for turnover pursuant to Section542(a). The fact that Section542(a) specifically allows a trustee to recover either the property itself, or the value of such property, clearly establishes that a party need not be in actual possession of the property at the time of the turnover demand to fall within the scope of 542(a).
Reversed.