592 B.R. 400
1st Cir. BAP2018Background
- Debtor (F. Lee Bailey) filed Chapter 13 after a Chapter 7 discharge; IRS had recorded federal tax liens for unpaid taxes (1993–2001). Debtor receives monthly pension and Social Security payments and listed the IRS as secured creditor in Chapter 13 schedules.
- IRS moved for relief from the automatic stay to enforce its liens against the Debtor's pension accounts and Social Security; bankruptcy court granted relief and served levies.
- Debtor proposed a Chapter 13 plan that would value and pay the IRS based on the present value of his future pension and Social Security income; IRS objected, arguing those future interests are not estate property and thus cannot be valued under § 506(a).
- Bankruptcy court asked briefing on (1) whether the Debtor’s future pension and Social Security interests are property of the estate for § 506(a) valuation and (2) whether sovereign immunity is abrogated under § 106 to permit valuation; court ruled those interests are not property of the estate, so it lacked jurisdiction under § 506(a) and § 106 did not abrogate sovereign immunity for such valuation.
- Debtor appealed to the BAP; First Circuit denied direct appeal. The BAP issued an order to show cause whether the appeal is appealable as of right or requires leave; parties briefed interlocutory appeal standards.
- BAP concluded the bankruptcy court’s order was interlocutory (denying confirmation component) and declined to grant leave to appeal under the § 1292(b)-style factors, dismissing the appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor's interest in future pension and Social Security payments is property of the bankruptcy estate | Debtor: pension and Social Security receipts are estate property as to IRS because IRS liens attach (26 U.S.C. § 6321) and thus may be valued | IRS: future interests are not estate property under § 541 (Patterson/§541(c)(2)); anti‑alienation prevents transfer to estate | Held: Not property of the estate; anti‑alienation principles control and prevent inclusion in the estate for valuation purposes |
| Whether bankruptcy court had subject‑matter jurisdiction to value those interests under § 506(a) | Debtor: court has jurisdiction to value the interests because they are estate property and thus basis for a secured claim | IRS: absent estate property, § 506(a) valuation jurisdiction does not exist | Held: Court lacked jurisdiction to value under § 506(a) because the interests are not estate property |
| Whether § 106 abrogates sovereign immunity to permit valuation of pension/Social Security interests | Debtor: § 106(a)(1) waives sovereign immunity as to § 506, permitting valuation against governmental units | IRS: § 106 does not permit valuation of collateral that is not property of the estate; sovereign immunity defense remains | Held: § 106 does not abrogate sovereign immunity to allow valuation of interests that are not estate property |
| Whether the bankruptcy court’s order is final and appealable as of right or requires leave to appeal | Debtor: order is final as it decides discrete legal questions (property, jurisdiction, sovereign immunity) and thus is immediately appealable; alternatively seeks leave to appeal under § 158(a)(3) | IRS: order is interlocutory because it sustained confirmation objection without final valuation or plan confirmation; nevertheless urges leave to appeal for efficiency | Held: Order is interlocutory (denial of plan confirmation component); the Debtor failed to satisfy interlocutory‑appeal criteria (no substantial ground for difference of opinion), so appeal was dismissed |
Key Cases Cited
- Patterson v. Shumate, 504 U.S. 753 (Sup. Ct. 1992) (ERISA anti‑alienation clause can exclude a debtor’s interest from the bankruptcy estate under § 541(c)(2))
- Bullard v. Blue Hills Bank, 575 U.S. 496 (Sup. Ct. 2015) (order denying plan confirmation is generally interlocutory; discrete‑issue finality limited)
- IRS v. Snyder, 343 F.3d 1171 (9th Cir. 2003) (anti‑alienation clause prevents transfer of ERISA pension interest to the estate for all creditors, rejecting a "split personality")
- Morse v. Rudler (In re Rudler), 576 F.3d 37 (1st Cir. 2009) (bankruptcy ‘‘discrete dispute’’ finality standard explanation)
- Caraballo‑Seda v. Municipality of Hormigueros, 395 F.3d 7 (1st Cir. 2005) (leave to appeal under § 1292(b)-style criteria should be used sparingly; substantial‑difference requirement is narrow)