Gill v. Kirresh (In Re Gill)
574 B.R. 709
| 9th Cir. BAP | 2017Background
- Debtor Cecil C. Gill owned a Beaverton, Oregon residence purchased in 2009; mortgage note held by Rana Kirresh. Debtor converted his Chapter 13 to Chapter 7 and received a discharge; Stephen Arnot is the Chapter 7 trustee.
- Kirresh held a first deed of trust (≈$371,000 at time of litigation). The IRS filed a secured proof of claim for unpaid income taxes (assessments for tax years 2005–2011), including about $48,276 in tax penalties.
- Trustee moved to sell the Residence free and clear under § 363(f), pay the mortgage, and have the IRS lien attach to remaining proceeds; Trustee proposed to avoid/subordinate the penalty portion of the IRS lien under §§ 724(a), 726(a)(4) and preserve it under § 551 for unsecured creditors.
- Debtor moved to compel abandonment under § 554(b), arguing the property was burdensome or of inconsequential value (claiming $500,000 value but $650,000+ encumbrances and repair costs).
- Bankruptcy court heard competing valuations (trustee’s broker $539,000; Classic report $434k–$516k; Debtor scheduled $500,000), found the Residence worth $500,000, concluded sale would produce substantial value for unsecured creditors, and denied the motion to abandon. Debtor appealed.
Issues
| Issue | Plaintiff's Argument (Gill) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Was the bankruptcy court’s valuation of the Residence erroneous? | Gill: court erred; his $500,000 excluded ~$75,000 repairs so true value ≈ $425,000, leaving no distributable equity. | Trustee: evidence supported $500,000 valuation; court reasonably discounted comps for repairs and relied on Debtor’s schedule plus broker analysis. | Court: No clear error; $500,000 value adopted. |
| Could the trustee avoid and preserve the penalty portion of the IRS tax lien for unsecured creditors? | Gill: Trustee offered no proof IRS consent to sell free and clear or to subordinate lien; penalties shouldn’t be preserved for unsecured creditors without consent. | Trustee: §§ 724(a), 726(a)(4) authorize trustee to avoid lien to extent it secures penalties, and § 551 preserves avoided liens for estate—no IRS consent required to subordinate penalty portion. | Court: Held trustee could avoid/subordinate penalty portion and preserve it for unsecured creditors; sale would yield substantial value. |
Key Cases Cited
- Holloway v. Internal Revenue Serv. (In re Odom Antennas, Inc.), 340 F.3d 705 (8th Cir.) (trustee may avoid lien portion securing tax penalties and protect unsecured creditors)
- In re Bolden, 327 B.R. 657 (Bankr. C.D. Cal. 2005) (denying debtor’s motion to compel abandonment where trustee could avoid and preserve tax-penalty portions of liens for unsecured creditors)
- Simonson v. Granquist, 369 U.S. 38 (U.S. 1962) (doctrine that innocent creditors should not be punished by enforcement of penalties against a debtor’s estate)