Bankruptcy: Unclaimed funds not subject to escheat by South Carolina

Where a bankruptcy trustee was left with $422,857.12 in unclaimed funds, and a 1956 amendment to the Bankruptcy Act of 1898 prohibits escheatment of the unclaimed funds to states, South Carolina is not entitled to the funds through escheatment.

Background

The State of South Carolina appeals from the decision of the bankruptcy court finding that under the Bankruptcy Act of 1898 unclaimed funds of the estate are not subject to escheat under state law but must be held in the United States Treasury.

On July 17, 1928, an involuntary Chapter VII bankruptcy petition was filed against Yellow Poplar Lumber Company Inc. In 1931, the South Carolina bankruptcy court closed the case.

In April 2013, a dispute arose as to the current ownership of natural gas estates in Virginia that Yellow Poplar owned prior to the bankruptcy. The South Carolina bankruptcy case was reopened and transferred to this district, where the property was located. The parties settled the dispute in 2017.

The estate received proceeds from gas wells it had an interest in at the time of its bankruptcy. The bankruptcy trustee subsequently sold those gas rights, and the proceeds were combined with royalties already received by the estate to be disbursed. Following disbursements, including to creditors and stockholders who could be located, the trustee was left with $422,857.12 in unclaimed funds.

The bankruptcy court was subsequently asked to determine whether the funds were escheatable to South Carolina under that state’s law. The competing parties were South Carolina, where the original bankruptcy proceeding took place, and where numerous deceased shareholders of Yellow Popular were located, and the United States, which contends that the funds must be held in the United States Treasury, where any claimants may seek recovery. The bankruptcy court held that the unclaimed funds were not subject to escheat by South Carolina.

Analysis

The parties disagree as to which version of Section 66 of the Bankruptcy Act of 1898 governs the unclaimed funds. South Carolina contends that Section 66 as it existed between 1928 and 1931 – the pendency of the initial bankruptcy proceeding against Yellow Poplar – is the applicable version. The United States, on the other hand, argues that the 1956 amendment to Section 66 applies here.

I agree with the United States. It has long been recognized that, absent explicit congressional intent, legislation generally will not be applied retroactively. The unclaimed funds in the present case did not even come into existence until 2017, decades after the 1956 amendment was enacted.

I agree with the bankruptcy court’s assessment that there is no conflict between state and federal law here given that the funds at issue did not escheat prior to the enactment of the 1956 amendment. I affirm the bankruptcy court’s finding that the 1956 amendment applies to this case. Given that the 1956 amendment prohibits escheatment of the unclaimed funds to states, I affirm the bankruptcy court’s finding that South Carolina is not entitled to the funds at issue through escheatment.

Venue

South Carolina challenges the bankruptcy court’s decision to deny South Carolina’s request to transfer the case to the District of South Carolina for decision on the question of escheat. This court finds no error. The bankruptcy court has presided over the present case since 2017. It relied on its extensive knowledge of the applicable facts and law to deny the motion on the ground that the 1956 amendment prohibited escheatment of the unclaimed funds to South Carolina. I thereby find that the bankruptcy court did not abuse its discretion in denying the motion.

Affirmed.

South Carolina v. United States, Case No. 1:25-cv-00007, Oct. 22, 2025. WDVA at Abington (Jones). VLW 025-3-439. 7 pp.