Case Type:
Case Status:
22-6009 (8th Circuit, Jun 01,2023) Published
Affirming the denial of the motion to compel abandonment of the estate's interest in her home by Machele Goetz (Goetz) by the U.S. Bankruptcy Court for the Western District of Missouri (BC), the Bankruptcy Appellate Panel for the Eighth Circuit (BAP) adopted the slight majority position that equity was subsumed within each item made property of the converted estate by §§ 348(f)(1)(A) and 541(a)(1), any post-petition equity change thus accruing to her estate's benefit, as the BC had, but also held that Goetz's claimed exemption did not excise the property from that estate, as it had not.
Procedural context:
Post-confirmation, Goetz filed a motion to convert her chapter 13 case to a chapter 7 one. At the time, as the parties agreed, the value of the property over which Freedom Mortgage (FM) held a lien had increased from $130,000 to $205,000, while Freedom Mortgage’s mortgage lien had decreased marginally, from $107,460.54 to approximately $106,500. As a result, while sale pre-conversion would have resulted in no proceeds in excess of the debt, exemption, and sale costs, its post-conversion sale would net more than $62,000 in proceeds after satisfying the mortgage lien and paying the $15,000 homestead exemption and costs of sale. Upon hearing indications that the trustee planned to now sell this property, Goetz filed a motion to compel its abandonment. The BC denied this request, having concluded that the equity increase between the petition date and the conversion date was property of the chapter 7 bankruptcy estate and that the affected residence is worth more than “inconsequential value and benefit to the estate” under 11 U.S.C. § 554. Goetz appealed, supported by the National Association of Consumer Bankruptcy Attorneys and National Consumer Bankruptcy Rights Center as amici.
Originally, Goetz filed for relief under chapter 13. She valued her residence at $130,000 at the time, and the parties stipulated that she claimed a $15,000 homestead exemption under section 513.475 of the Missouri Revised Statutes. On the petition date, Freedom Mortgage held a $107,460.54 mortgage lien against the property. Based on these numbers, the parties agreed that there would have been no proceeds in excess of the debt secured by the mortgage lien, exemption and costs of sale had the Trustee liquidated Goetz’s residence on the petition date. Goetz's plan was confirmed on October 16, 2020, and the property of the estate vested in her upon that order's date.
Shon Hastings; Michael E. Ridgway; and Anita L. Shodeen

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