465 B.R. 875
9th Cir. BAP2012Background
- Salazars filed a chapter 13 petition on September 3, 2008 and did not disclose a prepetition tax refund on Schedule B.
- During the chapter 13 pendency, Salazars received and spent a prepetition tax refund totaling $4,084.94.
- No chapter 13 plan was ever confirmed, and the case was converted to chapter 7 on August 19, 2009.
- The chapter 7 trustee sought turnover of the prepetition refund; Salazars argued the funds were no longer property of the estate because they were spent.
- The bankruptcy court denied turnover, concluding the refund was not estate property on conversion under § 348(f)(1)(A) due to being spent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the prepetition tax refund property of the Chapter 7 estate on conversion? | Salazars; spent funds are not estate property under 348(f)(1)(A). | Trustee; a refund may remain estate property unless no longer in possession per 348(f). | No; the refund, having been spent, is not property of the estate on conversion. |
Key Cases Cited
- In re Laflamme, 397 B.R. 194 (Bankr. D. N. H. 2008) (court applied good-faith use of estate funds pre-conversion)
- In re Fatsis, 396 B.R. 579 (Bankr. D. Mass. 2008) (no authority to treat §1303/1304 as permitting ordinary-course use of estate property)
- In re Fobber, 256 B.R. 268 (Bankr. E.D. Tenn. 2000) (warns against treating conversion as carte blanche to dispose estate assets)
- In re Grein, 435 B.R. 695 (Bankr. D. Colo. 2010) (absurd results not always invoked to reinterpret §348; consider context)
- Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 432 B.R. 812 (9th Cir. BAP 2010) (property of the estate question reviewed de novo)