1. INTRODUCTION - At issue is whether the estates of the husband and wife debtors who filed a joint petition have been consolidated. The wife, Michele Larue Mitchell, claims that they have not been consolidated. The trustee disagrees. If the estates have not been consolidated, the wife, Michele, may benefit by the refund of money held by the trustee after payment of all her separate creditors and the joint creditors of both debtors, but not the separate creditors of her husband, Gregory.

I conclude that the estates have never been consolidated.

Michele has also moved to dismiss, but since there is a substantial dividend which can be paid, dismissal will be denied.

     2. BACKGROUND - The debtors filed a joint chapter 13 petition as husband and wife under § 302 of the Bankruptcy Code on January 8, 1992. The case was voluntarily converted to chapter 7 on August 3, 1992.

The schedules indicated various real properties which were owned jointly, but, according to the trustee, did not accurately reflect that an escrow allegedly owned separately by Michele Larue Mitchell was her separate property. When the trustee discovered the escrow, he sold it for over $30,000.00. The trustee then filed a final account.

The claims register shows claims well in excess of the amount held by the trustee, including Proof of Claim No. 2 filed by the Internal Revenue Service for $32,464.39. About two-thirds of this is listed as unsecured priority and the balance as penalty for the unsecured priority tax. Most of it is for income taxes before 1990.

The trustee filed a final report and proposes to treat the estates of Michele and Gregory as consolidated and to apply the proceeds to the consolidated debt.

Michele filed a motion to challenge the trustee's final report and claims that she was only married to Gregory on December 15, 1990. She claims that the IRS proof of claim is almost all the obligation of her husband, Gregory.

Michele also claims that, of the claims filed, only about $10,579.89 arise from her separate debts or the joint debts of both. After paying these and the costs of administration, she claims the balance should be refunded to her.

In short, she says that the estates were never consolidated, that the funds that the trustee holds are from her separate assets, and that after paying administrative expenses and claims, including interest under § 726 of the Bankruptcy Code, she will be entitled to a refund of about $15,000 to $20,000.

On the other hand, if the estates are consolidated, all the money will go to administrative expense and priority tax claims. She will have no refund.

     3. ANALYSIS - 11 USC § 302 provides:

Section 302. Joint cases

(a) A joint case under a chapter of this title [11 USC §§ 101 et seq.] is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual's spouse. The commencement of a joint case under a chapter of this title [11 USC §§ 101 et seq.] constitutes an order for relief under such chapter.

(b) After the commencement of a joint case, the court shall determine the extent, if any, to which the debtors' estates shall be consolidated.

The commencement of a joint case creates two estates. In re Ageton, 14 BR 833, 835 (9th Cir BAP 1981), In re Leys, 49 BR 852, 853 (Bankr ED Wisc 1985).

Joint petitions are permitted by the Bankruptcy Code for ease of administration, but the estates of each spouse are separate unless they are consolidated. In re Ageton at 935 (discussing the legislative history) and In re McAlister, 56 BR 164, 166 (Bankr D Ore 1985). Joint cases may be consolidated. Matter of Chan, 113 BR 427 (ND Ill 1990).

The present Alaska Local Bankruptcy Rule, LBR 11(b), provides that the estates will be deemed consolidated unless someone objects by the time of the § 341 meeting. The form was copied from the local rules for the Eastern District of Washington. LBR 11(b) was not adopted, however, until after the Mitchells' chapter 7 case was filed and the § 341 meeting had been held.

I believe that, at one time, the original notice form for § 341 meetings and giving other information about the estate contained language similar to LBR 11(b). If so, in the course of using computer generated forms drafted by programmers not connected with the local court, information regarding consolidation has been deleted. In any event, the notice of the § 341 meeting in this case is silent about consolidation.

The clerk's office contacted the Administrative Office of the United States Courts Bankruptcy Division for some guidance in how the issue of consolidation of joint petition is handled in other bankruptcy courts around the country, and the impression is that the matter is largely ignored and the cases are treated as de facto consolidated.

The Local Rules Committee is currently discussing a modification of LBR 11(b). The court will be modifying its form which gives notice to creditors of the § 341 meeting and various other deadlines to advise that in a joint case the default will be to treat the estates of the husband and wife as consolidated unless someone objects within a specified period of time.

In the present case, however, there never was a formal order of consolidation. It thus remains open to Michele Mitchell to raise the arguments in this case that consolidation will have an adverse effect on her, and she is within her rights to object at this time. Compare, In re Birch, 72 BR 103 (Bankr D NH 1987).

     4. CONCLUSION - I conclude that the estates are not consolidated. Nonetheless, there are possible factual disputes regarding the source of the funds in the estate and whether they are, in fact, Michele's separate       3 ABR 388  property.

The parties have agreed that unless the trustee indicates he will challenge the factual assertions of Michele (which she did not support with a sworn declaration in her motion), the court will deem facts are as alleged in Michele's brief.

In that case, the trustee will have to revise his final account to recognize the existence of two estates and two separate lists of creditors. This will probably result in a refund to Michele of a substantial portion of the total funds held by the trustee.

DATED: May 16, 1994

HERBERT A. ROSS
U.S. Bankruptcy Judge