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“termination of an estate” as used in section 1398(i) could have
a different meaning in the context of other types of bankruptcy
proceedings, e.g., chapter 7 liquidating proceedings. The
possibility of differing treatment, however, may be appropriate
and may account for the use of “terminate” in section 1398(i),
instead of the term “closed”.
An important difference between chapter 11 and other
bankruptcy proceedings is that the chapter 11 debtor is generally
discharged at the time of confirmation of the plan. In addition,
at or about the time of confirmation the estate’s assets are
either returned to the debtor and/or (as in this case)
transferred to a liquidating trust for the benefit of creditors.
A liquidating trust for the benefit of the estate’s creditors has
been treated as a taxable entity separate from and not a
continuation or arm of the estate and/or the debtor. Holywell
Corp. v. Smith, 503 U.S. 47 (1992); see also In re Shank, 240
Bankr. 216 (Bankr. D. Md. 1999). In Holywell, the Supreme Court,
in overruling the lower courts, held that when a plan of
reorganization caused the transfer of the bankruptcy estate’s
assets to a liquidating trust for the benefit of creditors, the
plan did not merely substitute the trustee for the debtor as the
fiduciary of the bankruptcy estate, but created the trust as a
separate entity and taxpayer.
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