In Re Pelham Fence Co., Inc.
Lilliam Roberts, Commissioner of Labor for New York, moved for a declaratory judgment to establish that she is not barred by an automatic bankruptcy stay from pursuing funds withheld from the debtor, Pelham Fence Co., Inc., by the New York State Department of Audit and Control (DAC). The Commissioner argued these funds were not part of the bankruptcy estate. Alternatively, she sought relief from the stay, citing a lack of equity in the fund (approximately $57,000 against liens exceeding $600,000). The Chapter 7 bankruptcy trustee opposed the motion, contending the funds were estate property and that he might avoid prior liens for the estate's benefit. The court, citing precedents regarding segregated funds and lack of debtor equity, granted the Commissioner's motion, ruling that the withheld funds, subject to a pre-petition withholding order, do not constitute property of the bankruptcy estate and are not subject to the automatic stay.