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Nakhuda v. Shalaby (In re: Nakhuda)

Summarizing by Lars Fuller

Viegelahn v. Lopez

Fifth Circuit Draws on Harris v. Viegelahn to revest all property in the chapter 13 debtor on dismissal.

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Case Type:
Case Status:
Reversed and Rendered
17-50297 (5th Circuit, Jul 31,2018) Published
After voluntary dismissal, Chapters 13 debtors were entitled to the proceeds from the sale of homestead that had lost its exempt status. Proceeds that were acquired post-petition vested in the debtors upon dismissal under § 349(b). Failure to disclose sale and to reinvest proceeds within six months was not sufficient “cause” to order the non-exempt proceeds to be distributed to creditors.
Procedural context:
Bankruptcy court (W.D. Texas) ruled for the debtors and district court reversed. Debtors appealed to the Fifth Circuit.
Chapter 13 debtors claimed their homestead exempt under § 522. Between 2011 and 2014, trustee filed three motions to dismiss for failure to make timely payments. Debtors claimed they fell behind because husband had been incarcerated. They offered to surrender their vehicle to reduce monthly payments and filed motions to modify the plan. Without permission from the bankruptcy court, debtors sold their homestead in 2011 under a wrap-around note with a balloon payment. In 2014, debtors moved to sell the homestead nunc pro tunc to 2011. Trustee objected arguing the proceeds from the sale had become part of the bankruptcy estate because the debtors failed to reinvest in another home within six months. Bankruptcy court approved the sale and gave the debtors the option to retain the proceeds after a voluntary dismissal but without receiving a discharge. Trustee opposed arguing failure to disclose sale amounted to bad faith.

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