Taking sides with the Ninth Circuit Bankruptcy Appellate Panel and splitting with the First Circuit, Bankruptcy Judge Andrew B. Altenburg, Jr., of Camden, N.J., gave the post-petition appreciation in the value of non-exempt property to the chapter 13 debtor and not to creditors.
The facts were typical for cases taking sides in the debate raging all the way from bankruptcy courts up to the circuits. The debtor confirmed a five-year chapter 13 plan paying about $600 a month from future earnings.
The debtor owned a home with a scheduled equity of about $23,000 above his exemption.
Three years into the plan, the debtor filed a motion to sell his home for a price that was almost $130,000 more than the estimated value at filing. The debtor proposed to pay off the $14,000 remaining on the plan in one lump sum.
The trustee objected, contending that the appreciation in value was an estate asset requiring the debtor to pay his unsecured creditors in full.
Judge Altenburg approved the sale, initially requiring the net proceeds to be held in escrow. Then, he ruled in his August 24 opinion that the debtor was entitled to retain the proceeds.
The outcome was informed by three different provisions in chapter 13. Section 1306 says that property of the estate in chapter 13 includes property that the debtor acquires before the case is closed, dismissed or converted.
Unless the plan or the confirmation order says otherwise, Section 1327(b) provides that property of the estate revests in the debtor on confirmation.
Unless the plan or the confirmation order provides something else, Section 1327(c) says that property revested in the debtor on confirmation is free and clear of any claim or interest provided for in the plan.
Some courts give appreciation to creditors, while others allow the debtor to retain the increase. Judge Altenburg laid out three differing interpretations of the statutes leading to the differing results. He said that the three statutory provisions may be impossible to reconcile.
Judge Altenburg had no binding precedent from the Third Circuit. The First Circuit ruled in favor of creditors in Barbosa v. Soloman, 235 F.3d 31 (1st Cir. 2000). The Boston-based appeals court held that appreciation in the value of prepetition property is property that the estate acquires after confirmation and therefore belongs to creditors.
On the other side of the fence, the Ninth Circuit Bankruptcy Appellate Panel allowed a chapter 13 debtor to retain the post-petition increase in value of a nonexempt asset. Black v. Leavitt (In re Black), 609 B.R. 518 (B.A.P. 9th Cir. Dec. 31, 2019). To read ABI’s report on Black, click here.
Judge Altenburg decided to follow the BAP and the so-called estate replenishment theory, to “best harmonize” Sections 1306(a) and 1327(b).
The increase in the value of the home was not property of the estate because the home had revested in the debtor at confirmation, free and clear of claims. Respectfully disagreeing with Barbosa, he said that appreciation is not a separate asset that someone can pledge, liquidate or mortgage. It’s part of the home.
Because the home ceased to be estate property on confirmation, Judge Altenburg held that “the proceeds of its later sale could not become property of the chapter 13 estate.”
Judge Altenburg ruled that the debtor was entitled to retain the appreciation in the home while continuing to pay off creditors under the plan, month by month. Because the debtor had not made a motion to modify the plan, he declined to decide whether the debtor could pay off the plan in a lump sum.
Taking sides with the Ninth Circuit Bankruptcy Appellate Panel and splitting with the First Circuit, Bankruptcy Judge Andrew B. Altenburg, Jr., of Camden, N.J., gave the post-petition appreciation in the value of non-exempt property to the chapter 13 debtor and not to creditors.
The facts were typical for cases taking sides in the debate raging all the way from bankruptcy courts up to the circuits. The debtor confirmed a five-year chapter 13 plan paying about $600 a month from future earnings.
The debtor owned a home with a scheduled equity of about $23,000 above his exemption.
Three years into the plan, the debtor filed a motion to sell his home for a price that was almost $130,000 more than the estimated value at filing. The debtor proposed to pay off the $14,000 remaining on the plan in one lump sum.
The trustee objected, contending that the appreciation in value was an estate asset requiring the debtor to pay his unsecured creditors in full.
Judge Altenburg approved the sale, initially requiring the net proceeds to be held in escrow. Then, he ruled in his August 24 opinion that the debtor was entitled to retain the proceeds.