On a question where the bankruptcy courts are divided, Bankruptcy Judge Pamela W. McAfee of Raleigh, N.C., sided with the majority in holding that a chapter 13 debtor does not have standing to compel the sale of co-owned property under Section 363(h).

The chapter 13 debtor owned a home with his wife as tenants by the entireties. The home was allegedly worth some $375,000 and had mortgages and liens of about $230,000.

The debtor filed an adversary proceeding under Section 363(h) to sell both his interest and his estranged wife’s interest in the home. After payment of mortgages, the debtor intended on using his portion of the value of the home to pay creditors under a chapter 13 plan.

The estranged wife filed a motion to dismiss, contending that the chapter 13 trustee alone has standing to sell co-owned property under Section 363(h).

Selling co-owned property is governed by Section 363(h). If four conditions are met, the subsection provides that “the trustee may sell both the estate’s interest . . . and the interest of any co-owner in property in which the debtor had . . . an undivided interest as a tenant in common, joint tenant, or tenant by the entirety.”

With regard to standing, Section 1303 provides that the “debtor shall have, exclusive of the trustee, the rights and powers of a trustee under sections 363(b), 363(d), 363(e), 363(f), and 363(l), of this title.” Notably, the right to sell co-owned property under Section 363(h) is not included in powers given exclusively to the debtor.

Despite the omission of Section 363(h) from Section 1303, the debtor reasoned that the omission is inconsequential because the debtor has the powers of a trustee under Section 363(b), which is incorporated into Section 363(h). As Judge McAfee put it in her March 10 opinion, the debtor argued that “as a chapter 13 debtor, [he was] entitled to step into the shoes of a chapter 13 trustee and, in that capacity, pursue the sale of real property under 11 U.S.C. § 363(h).”

In deciding the wife’s motion to dismiss, the parties agreed that Judge McAfee would be answering a purely legal question.

Parsing the statute, Judge McAfee said that “only the sale powers set out in §§ 363(b) and 363(f) are specifically made available to a chapter 13 debtor by operation of § 1303,” while the debtor “seeks to proceed under § 363(h).”

Contrary to what might appear to be the plain reading of the statute, the debtor relied on a decision by another bankruptcy judge in the Northern District of North Carolina whose opinion could be read to give debtors the power of sale under Section 363(h). In re Guy, 587 B.R. 475 (Bankr. E.D.N.C. 2018). Discussing the opinion in detail, Judge McAfee concluded that the court in Guy “did not have to decide whether a chapter 13 debtor has standing to force an opposed sale under § 363(h).”

Judge McAfee followed what she called “the apparent majority view” by “focus[ing] on the omission of § 363(h) from the specified subsections delineated in § 1303.” She conceded, though, “that at least four other courts have, at least to some extent, adopted” the debtor’s theory.

Judge McAfee was persuaded by In re Wrublik, 312 B.R. 284 (Bankr. D. Md. 2004), where the bankruptcy court dismissed the debtor’s complaint seeking to sell both her and a co-owner’s property under § 363(h). Like the court in Wrublik, she could not understand how the power of Section 363(h) appears in Section 1303 “by some process of chemical osmosis.” Id. at 286.

Noting the plain language of the statutes, Judge McAfee observed that Congress could have given chapter 13 debtors the power to sell co-owned property by listing Section 363(h) in Section 1303.

Following the majority, Judge McAfee dismissed the debtor’s adversary proceeding, holding that “a chapter 13 debtor lacks standing to compel a sale under § 363(h) of the Bankruptcy Code.”