22 F.4th 1217
10th Cir.2022Background
- Debtors Julio Cesar Barrera and Maria de La Luz Moro filed Chapter 13 on April 5, 2016; their Highlands Ranch home was scheduled with liens exceeding much of its value, leaving exempt equity.
- Chapter 13 plan was confirmed and property revested in the Debtors under 11 U.S.C. § 1327(b); Debtors continued payments and were compliant.
- While still in confirmed Chapter 13, Debtors sold the house in April 2018 for $520,000; after liens and costs they received about $140,251 and retained ~$100,700 at conversion.
- Debtors voluntarily converted the case to Chapter 7 soon after the sale; the Chapter 7 Trustee sought the non-exempt portion of the sale proceeds.
- Bankruptcy Court and the Tenth Circuit BAP rejected the Trustee’s turnover motion; the Tenth Circuit panel affirmed, holding the post-petition, pre-conversion sale proceeds belonged to the Debtors under 11 U.S.C. § 348(f)(1)(A).
Issues
| Issue | Trustee's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Whether cash proceeds from a post-petition, pre-conversion sale of property are part of the converted Chapter 7 estate under 11 U.S.C. § 348(f)(1)(A) | Proceeds generated before conversion should become property of the Chapter 7 estate | § 348(f)(1)(A) limits converted estate to property of the estate "as of the date of filing" that remains in debtor possession/control at conversion; proceeds are distinct and did not exist at petition | Proceeds are not part of the converted Chapter 7 estate; they belong to the Debtors |
| Interaction of § 1327(b) revestment, § 541(a)(6) (proceeds), and § 1306 (after-acquired property) | Post-confirmation proceeds should be treated as estate property upon conversion | Confirmation revested property in debtor; proceeds from property sold after confirmation are not "proceeds of property of the estate" | Court emphasizes revestment under § 1327(b) and distinction between interests and proceeds; post-confirmation sale proceeds are not estate property on conversion |
| Application of § 348(f)(2) bad-faith exception | If debtor sold to shield value, proceeds should be included as of conversion | Sale was authorized/occurring after confirmation; no bad-faith determination on appeal | Court did not decide bad faith here; notes § 348(f)(2) allows estate to include property as of conversion if conversion was in bad faith |
Key Cases Cited
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) (bankruptcy courts’ authority to prevent abuse of process)
- Harris v. Viegelahn, 575 U.S. 510 (2015) (discussing costs/character of Chapter 7 discharge and consequences of liquidation)
- In re Bobroff, 766 F.2d 797 (3d Cir. 1985) (post-petition accruals not part of converted estate)
- In re Lybrook, 951 F.2d 136 (7th Cir. 1991) (contrasting rule: after-acquired property treated as part of converted estate)
- In re Taylor, 899 F.3d 1126 (10th Cir. 2018) (de novo review for statutory interpretation in converted-case contexts)