649 B.R. 625
Bankr. D.N.J.2023Background
- Debtor Leneto Runee Wright sued Trystone Capital Assets, LLC alleging preferential and fraudulent transfers from a tax-sale-certificate foreclosure of his residence; Trystone later conceded avoidability under 11 U.S.C. § 548(a)(1)(B).
- The Chapter 13 trustee declined to pursue avoidance; the trustee stated that if she would have had the ability, the debtor could proceed under 11 U.S.C. § 522(h).
- The narrow legal question was what a Chapter 13 debtor can recover when avoiding a transfer via § 522(h).
- The court held that Chapter 13 debtors lack independent trustee avoiding powers and proceed only under § 522(h), which limits avoidance “to the extent” of the debtor’s exemption under § 522(g)(1).
- Because Wright’s allowed exemption was $25,150, the court found he could avoid and recover only that amount and ordered Trystone to pay $25,150.
- The court declined to require Trystone to pay the debtor’s attorney’s fees; fee-shifting was not pled and the American Rule bars fee shifting absent statute or contract.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing / Authority to avoid alleged fraudulent transfer | Wright asserted he may avoid the transfer and recover under avoidance statutes (citing §548/§550) because trustee declined to act, invoking §522(h) | Trystone conceded avoidability but disputed the scope of recovery available to a Chapter 13 debtor | Chapter 13 debtors may avoid only via §522(h) when trustee declines; they do not have the trustee’s broader avoiding powers under Chapter 5 statutes |
| Extent of avoidance / recoverable amount | Wright sought recovery of the value of the property or full relief under §550 | Trystone argued recovery should be limited (or that full property return would be inequitable) | Avoidance under §522(h) is limited “to the extent” of the debtor’s exemption; Wright can recover only $25,150 (his exemption) |
| Whether recovery may be for benefit of the estate (full property/value) | Wright argued recovery under §550 allows recovery similar to a trustee (potentially restoring estate) | Trystone argued §522(i)(1) and §522(h) restrict recovery to the debtor’s exemption and do not convert the action into a trustee-for-creditors recovery | Recovery is not “for the benefit of the estate” here; §522(i)(1) allows recovery in the manner of §550 but subject to its limitations and the exemption cap, so recovery benefits the debtor to the extent of the exemption |
| Attorney's fees shifted to transferee | Wright included fees as part of relief from recovery under §550 | Trystone objected; fee-shifting was not pleaded and no statutory basis exists | Court refused fee-shifting; debtor may recover only his exemption amount and American Rule bars fee awards absent statutory or contractual basis |
Key Cases Cited
- United States v. Ron Pair Enters., 489 U.S. 235 (statutory interpretation principle: enforce plain language)
- Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1 (statutory text controls who may invoke a statute)
- In re Cybergenics Corp., 226 F.3d 237 (3d Cir. 2000) (chapter 11 debtor-in-possession has trustee-like avoiding powers)
- In re Hansen, 332 B.R. 8 (B.A.P. 10th Cir. 2005) (Chapter 13 debtor’s avoidance is limited to §522(h) circumstances)
- In re Funches, 381 B.R. 471 (Bankr. E.D. Pa. 2008) (rejecting implied broader avoiding rights for Chapter 13 debtors; adhere to plain language)
- In re Messina, 687 F.3d 74 (3d Cir. 2012) (debtor may benefit from avoidance when an exemption is filed)
- Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010) (American Rule: each litigant bears own attorney’s fees absent statute or contract)