In Re Rangel
DECISION ON TRUSTEE’S MOTION FOR RECONSIDERATION OF ORDER ALLOWING EMPLOYMENT OF REAL ESTATE BROKER
I. Background
On May 5, 1997, Roberto J. Rangel (the “Debtor”) filed for relief under Chapter 13 of the United States Bankruptcy Code. On Schedule A, the Debtor listed an interest in his residence which he holds as a tenancy by the entirety with his wife (the “Property”). He listed the value of the Property as $190,000 and the encumbrances as $162,648. The Debtor declared an exemption in his interest in the amount of $15,000.
The Court confirmed the Debtor’s Chapter 13 Plan on July 15,1997. The Order of Confirmation provided that upon confirma
In October of 1998, the Standing Chapter 13 trustee (the “Trustee”) filed a motion to dismiss the case on the grounds that the Debtor was in arrears under the plan which was a material default. On November 6, 1998, the Debtor filed an opposition to the Trustee’s motion in which he admitted that he was in material default under his plan as a result of his failure to make plan payments. The Debtor further stated that he was in the process of selling his house and that he would use the proceeds to make a lump sum payment in satisfaction of his obligations under his plan.
On November 9,1998, the Debtor filed a motion (the “Employment Motion”) seeking authorization to employ a real estate broker to sell the Property (the “Broker”). The Court granted the motion on November 13,1998.
Also on November 9, 1998, the Debtor filed a Notice of Intended Private Sale of Real Estate (the “Notice”) and a Motion for Authorization of Private Sale of the Property (the “Sale Motion”). In the Motion and Notice, the Debtor explained that from the sale price of $290,000 he intended to satisfy the encumbrances, his non-debtor wife’s one-half interest and his exemption and remit the remainder to the Trustee to hold pending the filing of an amended plan, the dismissal of the case or the entry of a discharge. Although the Notice and the Sale Motion state that the Broker agreed to a 5% commission of the gross sales price, the commission was not listed as a disbursement in the Notice. The Sale Motion noted that the Property “has been on the market for approximately 2 months and this offer is the highest in receipt.”
On November 19, 1998, the Trustee filed an objection to the Sale Motion and his Motion By Trustee John P. Fitzgerald to Reconsider Endorsement Order Allowing Employment of Real Estate Broker and Objection to Said Motion (the “Reconsideration Motion”). The Trustee objects to the sale on the grounds that the Debtor has not amended his plan, proposed applying the equity in the Property toward the plan, filed an application for compensation for counsel or timely obtained authority to hire the Broker, citing
In re Jarvis,
After the parties presented their arguments at the hearing on the various motions, they agreed that it would be appropriate to let the sale go forward. I therefore entered an order authorizing the sale. I continued the motion to dismiss generally. With respect to the Employment Motion, I ruled that the full commission could be paid from the interest of the non-debtor spouse subject to a 50% reimbursement from the Debtor if I ruled that the motion to employ was properly granted. I took the Employment Motion under advisement. The parties agreed that, with respect to that motion, the threshold issue is whether the Property is property of the estate post-confirmation and, if not, whether Court authorization to employ a real estate broker would be required.
II. Analysis
Property of the estate is defined in 11 U.S.C. § 541. 11 U.S.C. § 1306(a) augments that definition as follows:
(a) Property of the estate includes, in addition to the property specified in section 541 of this title—
(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11,or 12 of this title whichever occurs first; and
(2) earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7,11, or 12 of this title, whichever occurs first.
11 U.S.C. § 1306(a).
Therefore, unlike Chapter 7, Chapter 13 property of the estate includes assets acquired post-petition. Despite the language in 11 U.S.C. § 1306(a) that post-petition assets are property of the estate until the case is converted, dismissed or closed, 11 U.S.C. § 1327(b) contains another provision for the termination of property of the estate. That section provides that “[e]xcept as otherwise provided in the plan or in the order confirming the plan, the confirmation of a plan vests all of the property of estate in the debtor.” 11 U.S.C. § 1327(b).
Sections 1306(a) and 1327(b) are difficult to reconcile. That is, the vesting of property of the estate in a debtor upon confirmation contravenes having post-petition assets included in property of the estate until the case is closed, dismissed or converted. Numerous courts have written on this issue and three lines of cases have emerged.
The first line holds that property of the estate ceases to exist after confirmation of the plan.
Oliver v. Toth (In re Toth),
The second line of cases holds that the Chapter 13 estate continues after confirmation of the Chapter 13 plan. The Eight Circuit adopted this position in
Security Bank of Marshalltown v. Neiman,
The court recognized the split of authority on the issue and concluded that those cases which held that the estate continues to exist post-confirmation were better rea
The third line of cases holds that all but the property of the estate which a debtor needs to fund the Chapter 13 plan vests in that debtor post-confirmation.
In re Leaveil,
The court in
Leavell
decided that such a legal conclusion is warranted because there must be something for the Chapter 13 trustee to administer post-confirmation and § 1306 should be given full effect instead of being rendered superfluous.
Leavell,
These three approaches illustrate the difficulty in harmonizing §§ 1306(a) and 1327(b). Before attempting to reconcile these statutes, the Court is mindful that statutes should be construed so as not to render any statute superfluous.
Woodfork v. Marine Cooks & Stewards,
Under the line of cases which give great weight to § 1327(b), various statutes are rendered meaningless or superfluous. For example, § 1305 provides the grounds under which a post-confirmation creditor can file a proof of claim. If there is no post-confirmation estate and stay, a post-confirmation creditor would not need to file such a claim. If § 1327(b) revests property of the estate in a debtor, the language in § 1306 (property of the estate remains as such until the case is “closed, dismissed or converted”), § 704(9) (trustee to administer estate) and § 1329 (trustee and unse
In addition to the problems with statutory construction, such a theory means that if a Chapter 13 debtor were to obtain a windfall one day after confirmation, such a windfall would not be available to creditors. It also means that a post-petition creditor could attach those wages which a debtor needs to fulfill the terms of the plan without running afoul of the automatic stay.
The proffered benefit of this theory is that a debtor will be able to obtain credit easily and a creditor to whom that debtor would be indebted will be easily able to collect on that debt. The Court questions this benefit. First, if the theory behind Chapter 13 is that a debtor is to devote disposable income to the repayment of creditors, it is unclear why the Code should be interpreted to enable a debtor to incur more debt. Second, the Code and our local rules contemplate oversight of the obtaining of credit which indicates that it was not Congress’ intent to ensure a debtor could easily obtain credit post-petition. Third, the Code provides a mechanism for the repayment of a creditor who has extended credit for property or services which were necessary for a debtor to effectuate the plan. That Congress chose not to include all post-petition creditors seems to indicate that those creditors who extend credit for property or services which are not necessary to the plan do so at the peril of not being able to collect on that debt until the debtor is free from the bankruptcy.
See Annese v. Kolenda (In re Kolenda),
It might be argued that another benefit of this approach is that a debtor would be more willing to attempt reorganization over liquidation if all property of the estate vested in the debtor upon confirmation without further oversight from a court. As explained above, however, a debtor is still subject to oversight post-confirmation. Moreover, Chapter 13 offers a debtor relief unavailable under Chapter 7 such as the “super discharge”, retention of assets, mortgage rehabilitation, lien modification and the co-debtor stay.
Under the line of cases which give greater weight to § 1306(a), debtors would be potentially inhibited from obtaining post-petition credit and post-petition creditor may be inhibited from collecting on such a debt until a case is closed, dismissed or converted except as provided under § 1305. As I explained above, the Court does not find these issues troubling.
As for statutory construction, under this line of cases, § 1327(b) would be rendered superfluous. Section 348(f),
6
enacted after
One court has written that § 348 supports the conclusion that property of the estate exists post-confirmation.
City of Chicago v. Fisher (In re Fisher),
Although § 348(f)(1)(A) generally rejects the result of Lybrook — the post-conversion estate contains the estate property as of the date of the petition’s filing rather than conversion — the new subsection operates in a way that implies the existence of estate property after confirmation. By defining the post-conversion estate as property of the estate in the debtor’s possession or under the debt- or’s control “on the date of conversion,” and because conversion may occur after confirmation or ‘at any time,’ § 1307(a), then the post-confirmation estate cannot generally be devoid of property. Moreover, § 348(f)(2) makes the same implication; indicating some agreement with Lybrook's reasoning, that subsection protects against bad faith conversions by deeming the post-conversion estate to include ‘property of the estate as of the date of conversion.’
The line of cases which holds that property of the estate consists of that which a debtor needs to satisfy the terms of the plan, the so called “middle ground” approach is not without problems. First, while the approach seems equitable, it nullifies both §§ 1327(b) and 1306(a). Moreover, it is unclear what would constitute post-confirmation property of the estate under this formulation. For example according to
In re Ziegler,
In
City of Chicago v. Fisher, supra,
the court claimed to adopt the middle ground approach. In effect, however, it presented a fourth approach. In an effort to recon
This approach does reconcile §§ 1306(a) and 1327(b). Furthermore, it gives meaning to the language in §§ 347, 349, 704(9), 1302, 1305 and 1329. Although such a ruling would bring into the estate post-confirmation income and assets, it does not run afoul of § 348(f) which would exclude such assets from the Chapter 7 estate in the event of a good faith conversion. The automatic stay would enable a debtor to consummate a plan and would protect post-petition creditors to the extent discussed above.
The Court agrees with the court in
Ziegler, infra,
that “[rjemedial legislative drafting would more appropriately solve the conundrum over which all of the above authorities have labored so long with varying results.”
III. Conclusion
Pursuant to the approach I adopt and as a result of the vesting language in the Order of Confirmation, the Property, including the equity above the mortgage and the Debtor’s exemption, vested in the Debtor on confirmation and is no longer property of the estate. As such, the Debt- or was not required to file an application to employ the Broker and the order granting the same will be vacated. 9 The order granting the sale motion will stand as the Debtor is required to comply with Fed. R.Bankr.P. 4001 and 6004 during the course his Chapter 13 case.
Under a decision which this Court recently issued, however, the Debtor is required to submit an amended plan and amended schedules I and J because he plans to use the proceeds of the sale to make a lump sum payment to satisfy his plan.
See In re Martin,
Notes
. In this district, Chapter 13 debtors are required to comply with 11 U.S.C. § 363, Fed. R.Bankr.P. 4001 and 6004. See MLBR Appendix 1, 13-14. See also 11 U.S.C. § 1305(c) (disallowing post-petition consumer debt claim if claimant failed to obtain the approval of the Trustee when practicable.)
. Another statute which the court did not reference but which belongs in this discussion is 11 U.S.C. § 1305(a)(2) which provides that an entity may file a proof of claim for a consumer debt, "that arises after the date of the order for relief ... that is for property or services necessary for the debtor's performance under the plan.” If no estate exists post-confirmation, such a statute would be rendered meaningless.
. The court limited its holding to post-petition income and specifically excluded from its holding property acquired post-petition.
. If there is no property of the estate, the necessity or the ability of the Trustee or an unsecured creditor to modify a plan as provided in § 1329 would be questionable.
. An argument could be made that although the real property is not property of the estate, a court should and could exercise oversight over sales or refinancings to ensure that such actions would not hamper a debtor’s ability to make monthly plan payments. The need for court oversight, however, is questionable under this theoiy as even plan payments would not be properly of the estate.
.11 U.S.C. § 348(f) provides as follows:
(1) Except as provided in paragraph (2), when a case under chapter 13 of this title is converted to a case under another chapter under this title—
(A) property of the estate in the converted case shall consist of properly of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion; and
(B) valuations of property and of allowed secured claims in the chapter 13 case shall apply in the converted case, with allowed secured claims reduced to the extent that they have been paid in accordance with the chapter 13 plan.
(2) If the debtor converts a case under chapter 13 of this title to a case under another chapter under this title in bad faith, the property in the converted case shall consist of the property of the estate as of the date of conversion.
. In his treatise, Judge Lundin writes as follows:
The logic of the 1994 amendments to § 348 supports the argument that property acquired by a Chapter 13 debtor by inheritance or windfall after confirmation belongs to the debtor. Such property was not property of the estate 'as of the date of filing the petition' and no creditor has any (reasonable) expectation of payment from that property, except possibly upon bad faith conversion.
Keith M. Lundin, Chapter 13 Bankruptcy, § 6.18 (2nd ed. Supp.1996).
. "This amendment would clarify the Code to resolve a split in the case of (sic) law about what property is in the bankruptcy estate when a debtor converts from chapter 13 to chapter 7.” HR Rep. 103-834, 103rd Cong., 2nd Sess. 42-43 (Oct. 4, 1994); 140 Cong. Rec. HI 0770 (Oct. 4, 1994).
. Accordingly, the Reconsideration Motion will be denied as moot.