Simon Rodriguez v. Julio Barrera

Case Type:
Consumer
Case Status:
Affirmed
Citation:
BAP No. CO-20-003 (BAP 10th Cir. Oct. 2, 2020) (unpublished) (10th Circuit, Oct 02,2020) Not Published
Tag(s):
Ruling:
The 10th Circuit BAP affirmed the bankruptcy court's ruling that the post-petition appreciation of property owned by a chapter 13 debtor on the petition date does not constitute property of the estate under section 348(f)(1) upon conversion to chapter 7, and a chapter 7 trustee is not entitled to turnover of the value of the post-petition appreciation of the property even under circumstances where the appreciation is non-exempt and unencumbered.
Procedural context:
Husband and wife debtors filed a petition for relief under chapter 13 of the Bankruptcy Code. On the petition date, husband and wife owned a home that they disclosed on their Schedule A. As of the petition date, the mortgages on the home and the state law exemption claimed by the debtors exceeded the fair market value of the home, leaving no non-exempt equity. The debtors proposed, and the bankruptcy court confirmed, debtors' chapter 13 plan. Upon confirmation, the debtors' chapter 13 plan vested all of the property of the estate in the debtors. Debtors then sold the home for for substantially more than the value of the encumbrances and debtors' state law exemption, creating unencumbered, non-exempt property. Debtors then converted their case to a proceeding under chapter 7. The chapter 7 trustee sought turnover of the non-exempt net proceeds of the sale, asserting that the non-exempt net proceeds constituted property of the chapter 7 estate. Debtors argued that none of the net proceeds of the sale constituted property of the estate. The bankruptcy court determined that use of the term "property" within section 348(f)(1)(A) was ambiguous and that the legislative intent underlying section 348(f)(1) required that "property" as used within the section meant the debtor's property "as it existed on the petition date" and excluded post-petition appreciation. The bankruptcy court denied the chapter 7 trustee's motion, and the chapter 7 trustee appealed.
Facts:
The debtors and chapter 7 trustee stipulated to the following facts: Husband and wife debtors filed a petition for relief under chapter 13 of the Bankruptcy Code. On the petition date, husband and wife owned a home with a fair market value of $396,606, and they disclosed the home on their Schedule A. The home was subject to two liens totaling $336,209. The debtors asserted a $75,000 state law exemption against the value of the home. Combined, the liens and exemption exceeded the fair market value of the home as of the petition date, leaving no non-exempt equity. Thereafter, the bankruptcy court confirmed debtors' chapter 13 plan, which required debtors to pay $4,400 in arrears on the mortgages secured by liens on the home and to make post-petition mortgage payments directly to the creditor. Upon confirmation, the debtors' chapter 13 plan vested all of the property of the estate in the debtors. Debtors then sold the home for $520,000, leaving $140,250.63 in net proceeds after satisfaction of the lienholders. After selling the home and with $100,000 still in their bank account, the debtors converted their case to chapter 7. The chapter 7 trustee sought turnover of the net proceeds of the sale less debtors' allowed exemption of $75,000.
Judge(s):
Cornish, Michael, Lloyd

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