Butner v. United States

In Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), the Supreme Court considered whether federal or state law should govern in deciding which party - as between the bankruptcy trustee and the mortgagee - holds the property interest in the rents collected between the time that a mortgagor declares bankruptcy and the time of the foreclosure sale of the mortgaged property. 440 U.S. at 49, 99 S.Ct. 914. In holding that state law should control, the Court noted that "property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." Id. at 55, 99 S.Ct. 914. The Court examined whether state law or federal bankruptcy law governs "whether a security interest in property extends to rents and profits derived from the property." Id. at 52, 99 S.Ct. 914. After recognizing that Article I, 8, clause 4 of the Constitution gives Congress the power to establish "uniform Laws on the subject of Bankruptcies throughout the United States," the Court noted that Congress "has generally left the determination of property rights in the assets of a bankrupt's estate to state law." Id. at 54, 99 S.Ct. 914. "Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." Id. at 55, 99 S.Ct. 914. The Butner Court therefore held that state law governed the question it was deciding.