On an issue where courts are split, Chief Bankruptcy Judge Joseph M. Meier of Boise, Idaho, followed the Tenth Circuit Bankruptcy Appellate Panel by holding that post-petition appreciation in the value of a homestead belongs to the debtor when a case converts from chapter 13 to chapter 7.
On filing her chapter 13 petition, the debtor valued her homestead at about $100,000. It was subject to a mortgage for about $62,000. At the time, the Idaho homestead exemption was $100,000.
The bankruptcy court entered an order limiting the debtor’s exemption in the home to $32,000.
A few months after confirming her chapter 13 plan, the debtor converted the case to chapter 7. The chapter 7 trustee evidently believed that the home was worth more than $100,000. Surmising that the home was actually worth $140,000, the trustee wanted to sell the home out from under the debtor and limit her exemption in the proceeds to $32,000.
In his January 8 opinion, Judge Meier decided that post-petition appreciation in the home belongs to the debtor.
The debtor’s first argument failed to persuade Judge Meier. She contended that the chapter 7 estate did not include her homestead because it vested in her on confirmation of the chapter 13 plan under Section 1327(b).
The outcome of the debtor’s first argument turned on statutory language. When a chapter 13 case converts to chapter 7, Section 348(f)(1)(A) now provides that “property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the [chapter 13] petition, that remains in the possession of or is under the control of the debtor on the date of conversion.”
Judge Meier held that the plain language of the statute brought the home into the chapter 7 estate because the debtor owned the home on filing her chapter 13 petition.
The next question was this: Did the debtor’s homestead exemption of $32,000 become immutably fixed on the chapter 13 filing date?
Again, the debtor lost, but the loss was not fatal.
“Under the ‘snapshot rule,’” Judge Meier said, “the exemptions that can be claimed and the amount of such exemptions are frozen as of the date of the petition. [Citing Ninth Circuit authority.] The conversion of this case does not change the value of the Home or the exemption against it as they existed at the time of the petition.”
Judge Meier thus held that the debtor’s “homestead exemption remains limited to [$32,000] — the amount this Court previously determined Debtor could claim as an exemption based on the date of the petition.”
The debtor was left with a final argument: Even though she was stuck with a $32,000 homestead exemption, was the debtor entitled to retain post-petition appreciation in the value of the home after conversion to chapter 7?
Here, courts are divided and the statute has no clear answer. Aside from caselaw in her favor, the debtor’s best argument was based on the legislative history regarding Section 348(f)(1)(A), which Judge Meier quoted.
Judge Meier was persuaded by the analysis by Bankruptcy Judge Elizabeth E. Brown of Denver in In re Barrera, 620 B.R. 645 (Bankr. D. Colo. 2020). Judge Brown was affirmed by the Tenth Circuit Bankruptcy Appellate Panel in Rodriguez v. Barrera (In re Barrera), 20-003, 2020 BL 381720, 2020 WL 5869458 (B.A.P. 10th Cir. Oct. 2, 2020) (appeal pending). To read ABI’s report on the BAP’s Barrera opinion, click here.
Judge Meier said that Barrera “better reflects the legislative intent of § 348.”
“Based on the comments in the House Report,” Judge Meier decided that “Congress took issue with the remedy Trustee seeks in this motion.” He noted that the debtor “had equity in the Home on the date of the petition, [and] the home would likely have been abandoned to the Debtor if this case had proceeded under chapter 7 from its commencement.”
Judge Meier held that “the appreciation should not belong to the estate now merely because the case began as a chapter 13 case and was converted to a chapter 7 case.” He held that “the appreciation in the Home inured to the Debtor upon conversion.”
On an issue where courts are split, Chief Bankruptcy Judge Joseph M. Meier of Boise, Idaho, followed the Tenth Circuit Bankruptcy Appellate Panel by holding that post-petition appreciation in the value of a homestead belongs to the debtor when a case converts from chapter 13 to chapter 7.
On filing her chapter 13 petition, the debtor valued her homestead at about $100,000. It was subject to a mortgage for about $62,000. At the time, the Idaho homestead exemption was $100,000.
The bankruptcy court entered an order limiting the debtor’s exemption in the home to $32,000.
A few months after confirming her chapter 13 plan, the debtor converted the case to chapter 7. The chapter 7 trustee evidently believed that the home was worth more than $100,000. Surmising that the home was actually worth $140,000, the trustee wanted to sell the home out from under the debtor and limit her exemption in the proceeds to $32,000.
In his January 8 opinion, Judge Meier decided that post-petition appreciation in the home belongs to the debtor.