Rogers v. Freeman (In re Freeman)Rogers v. Freeman (In re Freeman)
ORDER
The above-styled case comes before the Court on Objection to Debtor’s Property Claimed as Exempt (hereinafter the “Objection”), filed by Beth E. Rogers and BER Law Offices (hereinafter “Rogers”). Rogers seeks an order from the Court declaring that certain funds, currently held by Anthony B. Freeman (hereinafter the “Debtor”) in a State Farm retirement account, are property of the Debtor’s Chapter 7 estate and cannot be claimed exempt under the Bankruptcy Code
Factual Background
The relevant facts of this case are undisputed.
1. On July 1, 2009, the Debtor received a letter from his then-current employer, Excelon Business Services Co., notifying him that his employment would be terminated on July 31, 2009, and informing him that he would receive severance pay in the total amount of $29,826.92, less deductions for taxes. See Debtor’s Dep., Jan. 16, 2014, Ex. 15, at 2 (Dkt. No. 162, Ex. B).
2. On August 3, 2009, the Debtor filed for relief under Chapter 11 of the Bankruptcy Code. See Debtor’s Petition (Dkt. No. 1).
3. Between September 10, 2009, and October 22, 2009, the Debtor received four checks totaling $21,635.67 (hereinafter the “Severance Income”). See Debtor’s Dep., Jan. 16, 2014, Ex. 17, at 1-4 (Dkt. No. 162, Ex. B).
4. Between September 29, 2009 and November 4, 2009, the Debtor invested the Severance Income into his State Farm retirement account. See Debtor’s Dep., Dec. 16, 2013, Ex. 4, at 6 & 9 (Dkt. No. 162, Ex. A).
5. Sometime on or before April 5, 2010, the Debtor received bonus income of$13,395.29 (hereinafter “2010 Bonus Income”), and on April 5, 2010, he invested it in his State Farm retirement account. See Debtor’s Dep., Jan. 16, 2014, at 22-23 (Dkt. No. 162, Ex. B); Debtor’s Dep., Dec. 16, 2013, Ex. 6, at 5 (Dkt. No. 162, Ex. A).
6. On July 16, 2010, the Debtor filed his Chapter 11 Disclosure Statement. See Debtor’s Disclosure Statement (Dkt. No. 62) (hereinafter the “Disclosure Statement”). According to the Disclosure Statement, “payment and distributions under the Plan [were to] be funded by Debtor’s income from his employment.” Id. at 6. The budget attached to the Disclosure Statement was consistent with that statement. See id., Ex. C. (showing that the Debtor’s salary and rental income solely shall be used to fund the Plan).
7. On February 24, 2011, the Debtor filed his First Amended Plan of Reorganization (hereinafter the “Plan”). See Debtor’s Am. Plan (Dkt. No. 89). Under Subsection A to Article VI of the Plan, titled Source of Operating Funds, the Debtor provides only that the “projections show that there will be sufficient net operating income to pay all administrative expenses and all classes of claims as provided under the Plan.” Id. at 11. Under Article X, the Plan stipulates that all property of the estate, except as provided for in the Plan or Confirmation Order, shall vest in the Debtor, “free and clear of all claims, liens, charges, and other interests of creditors arising prior to the Confirmation Date.” Id. at 12.
8. On March 1, 2011, the Court confirmed the Plan. See Ct.’s Order, Mar. 1,2011 (Dkt. No. 91).
9. Sometime on or before April 11, 2011, the Debtor received bonus income of $10,000 (hereinafter “2011 Bonus Income”), and on April 11, 2011, he invested it in his State Farm retirement account. See Debtor’s Dep., Jan. 16, 2014, at 25-26 (Dkt. No. 162, Ex. B); Debtor’s Dep., Dec. 16, 2013, Ex. 7, at 5 (Dkt. No. 162, Ex. A).
10. The Debtor voluntarily converted this case to Chapter 7 on April 29, 2013, under Section 1112(a) of the, Code. See Ct.’s Order, April 29, 2013 (Dkt. No. 129).
Respective Legal Positions
Rogers argues that funds received by the Debtor while a debtor in possession, including the Severance Income, the 2010 Bonus Income, and the 2011 Bonus Income, became and remained property of the bankruptcy estate and cannot be claimed as exempt. In support of this position, Rogers submits that the bankruptcy estate was established upon the filing of the petition, the estate acquired property during its pendency in Chapter 11, the acquired property flowed through to the Chapter 7 estate upon conversion, and the acquired property retained its initial character, rendering it ineligible for exemption. In response, the Debtor in effect argues that the estate reset upon conversion and that property of the estate is determined by looking to the date of the filing of the petition. Under the Debtor’s theory, the Chapter 7 estate cannot be augmented by sections of the Code, which may have been applicable in Chapter 11, that are no longer applicable now that the case resides in Chapter 7; consequently, the Debtor believes that, since all the
As is often the case, the answer lies somewhere between the two positions. As discussed further below, the Court finds that: (1) the Severance Income became property of the estate upon the filing of the Chapter 11 ease and the 2010 Bonus Income became property of the estate upon its being earned by the Debtor, but both of these property interests vested in the Debtor upon confirmation of the Plan and did not revest in the bankruptcy estate upon conversion of the case to Chapter 7; and (2) the 2011 Bonus Income became property of the estate upon its being earned by the Debtor post-confirmation and remained property of the estate upon conversion of the case to Chapter 7. The Court also concludes that, although the Debtor may be entitled to exempt a portion of the 2011 Bonus Income, the currently claimed exemption is defective. Accordingly, the Court sustains in part Rogers’ objection to the exemption, subject to the Debtor’s right to amend Schedule C to claim a proper exemption.
Analysis
Two happenings are pivotal to determining the outcome of this case: the confirmation of the Chapter 11 Plan and the conversion of this case to Chapter 7. For organizational purposes, the Court shall first analyze the effect of confirmation on property of the estate.
I.
It is settled law that once a bankruptcy case is commenced, property owned by the debtor is distinct from property that becomes part of the bankruptcy estate. In re Floyd,
As I already noted, when a plan is silent as to the vesting of assets upon conversion after default, courts disagree whether and which assets of a reorganized debtor will revest in the bankruptcy estate upon post-confirmation conversion. This debate turns primarily on the interpretation of 11 U.S.C. § 348(a). Section 348(a) provides that, upon conversion of a chapter 11 case to a chapter 7 case, the conversion order “constitutes an order for relief under the chapter to which the case is converted,” however, subject to exceptions not applicable here, conversion “does not effect a change in the date of ... the commencement of the case....” 11 U.S.C. § 541(a)(1) provides that property of the estate is “all legal or equitable interests of the debtor in property as of the commencement of the case.”
Some courts have interpreted section 348 to mean that only property owned by the debtor when the original case was commenced will revest in the estate upon conversion of a substantially consummated chapter 11 case. Smith v. Lee (In re Smith),201 B.R. 267 (D.Nev. 1996), aff'd,141 F.3d 1179 (9th Cir.1998). Other courts have interpreted this provision to mean that any property held by the reorganized debtor on the confirmation date revests in the chapter 7 estate. See Carey v. Flintridge Lumber Sales,Inc. (In re RJW Lumber Co.), 262 B.R. 91 (Bankr.N.D.Ca.2001) (court held avoidance actions revested in the chapter 7 trustee). Still other courts have held that in addition to assets that vested in the reorganized debtor on the confirmation date, assets generated post confirmation vest in the chapter 7 estate as well. See Berner v. United Jersey Bank (In re Midway, Inc.),166 B.R. 585 , 590 (Bankr.D.N.J.1994). In Bezner the court held that the. debtor’s post-confirmation pre-conversion accounts receivable became property of the chapter 7 estate upon conversion. While the court recognized that, pursuant to section 348(a), conversion of the chapter 11 case to chapter 7 “does not change the commencement date of the case and therefore does not technically create a new estate ... ”, the court nonetheless held that a strict reading of these Code provisions would mean there would be no assets to distribute upon conversion, and therefore “ignores the provisions of chapter 7 providing for distribution of estate property.” Id. at 590.
A slightly different approach was used by the Ninth Circuit in Pioneer Liquidating Corp. v. U.S. Trustee (In re Consolidated Pioneer Mtg. Entities),264 F.3d 803 (9th Cir.2001). In Pioneer the court held that the provisions in the failed but confirmed chapter 11 plan which provided for distribution of proceeds to investors and the bankruptcy court’s continuing jurisdiction “to oversee [the] implementation of the plan ...” should be interpreted as plan provisions, albeit not specific, that revested assets in the estate upon conversion. Id. at 807.
Conversely, other courts have examined 11 U.S.C. § 1141 and have held that conversion does not rescramble the egg. An extreme view is reflected in In re TSP Industries, Inc.,117 B.R. 375 (Bankr.N.D.Ill.1990). In TSP the court held that, in the absence of a plan provision, no assets revest when a case is converted to a chapter 7 case post-confirmation and therefore no estate is created upon conversion. “There are no provisions in the Bankruptcy Code that provide for the recreation of an estate upon the post-confirmation conversion of a confirmed chapter 11 to a case under chapter 7. Put another way, once property has vested in the Debtor, conversion will not revest that property in the estate.” Id. at 377-378. See also Pauling Auto Supply Inc.,158 B.R. 789 (Bankr.N.D.Iowa 1993) (the court questioned in dicta whether there can be an estate upon a post-confirmation conversion if there are no estate assets to distribute).
Other courts have held that, while an estate is created upon conversion, the assets that vested in the debtor upon confirmation do not revest in the chapter 7 estate. See Carter v. Peoples Bank & Trust Co. (In re Carter),201 B.R. 838 (Bankr.S.D.Ala.1996). In holding that conversion of a case post-confirmation does not “undo” the plan, the court noted that once assets vest in a reorganized debtor the assets fall outside the bankruptcy court’s jurisdiction, as the assets are no longer property of the estate. Id. at 849-50. Moreover, the court noted, post-confirmation conversion of a case is neither revocation nor modification, the timing for each of which is strictly limited under the Bankruptcy Code, and therefore the consequences of conversion must necessarily be different from the consequences of revocation or modification or the revocation and modification provisions are rendered superfluous. Id. Accord K & M Printing,210 B.R. 583 (Bankr.D.Ariz.1997) (the court recognized that therecan be an estate post-conversion but if there are no assets to administer conversion may not be in the best interests of the estate or the creditors); In re Smith, 201 B.R. 267 , 274 (D.Nev.1996) (to say there can be no conversion once there is a confirmed plan would render portions of section 1112 a nullity).
In re Sundale, Ltd.,
The Court’s own survey of the legal landscape confirms that the weight of authority emphatically supports the conclusion reached in Sundale. See In re Bell,
The Court acknowledges that the conclusion reached in Sundale is not unanimous. See, e.g. In re Consol. Pioneer Mortg. Entities,
The Court agrees, however, with the reasoning of Sundale. There is a post-conversion estate, but, absent a provision in the Plan or confirmation order specifying otherwise, property of the estate on the date of confirmation vests in the debt- or at confirmation and does not revest in the post-conversion estate.
II.
Having determined that — unless otherwise stated in the Plan — property of the estate at confirmation vests in the debtor and stands outside of the post-conversion Chapter 7 estate, it is essential that the Court identify the property at issue to which that principle applies. As the statutory provisions at issue in a Chapter 11 case (sections 1115(a)(2) and 1141(b)) are virtually identical to sections 1306 and 1327(b), the Court shall proceed by extrapolating from the Eleventh Circuit’s precedent regarding this issue in the Chapter 13 context.
The Eleventh Circuit has twice recognized that, by their very language, Sections 1306 and 1327 are in tension with one another. See In re Waldron,
Subsequently, the Eleventh Circuit clarified in Waldron that the “estate transformation approach” applies only to property in the estate at confirmation, and not to property of the estate acquired after con
First, as to the Severance Income, Section 541 provides that property of the estate consists of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Section 541 has been generously construed to include “every conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative.” In re Yonikus,
The Debtor acquired a nonpos-sessory interest in the Severance Income on July 1, 2009, when he received the letter terminating his employment with Excelon, vesting in him a right to receive severance pay. Thereafter, when the bankruptcy ease was commenced on August 3, 2009, the Debtor’s pre-petition interest in the Severance Income became property of the bankruptcy estate. Nevertheless, the Debtor only stipulated that he would fund the Plan from “income from his employment.” See Debtor’s Disclosure Statement, at 6 (Dkt. No. 62). The Debt- or’s Disclosure Statement and accompanying budget make clear that the Debtor did not intend to allocate the Severance Income to the Plan. Because the Plan did not require the Severance Income to fulfill the Debtor’s obligations under the Plan and because no other provision reserved the property for the estate, the Severance Income vested in the Debtor at confirmation and did not revest in the estate upon conversion.
Second, the 2010 Bonus Income became property of the Debtor’s Chapter 11 estate as á result of Section 541(a)(7), which includes as property of the estate “[a]ny interest in property that the estate acquires after the commencement of the case.” 11 U.S.C. § 541(a)(7). In Chapter
There appears to be no dispute that the Debtor earned the 2010 Bonus Income from services rendered after the commencement of this case. There also can be no dispute that the Debtor received the 2010 Bonus Income prior to the confirmation of the Plan. Accordingly, the 2010 Bonus Income represented property of the estate on the date of confirmation. Furthermore, the Disclosure Statement clearly references the attached budget when stating that the Debtor’s income from employment will fund the Plan, and the budget depicts a periodic monthly salary as the source of funding, void of any reference to prospective bonus income. Therefore, the Court finds that there was no provision reserving the 2010 Bonus Income for the estate and the 2010 Bonus Income was not necessary to the Debtor’s obligations under the Plan. Consequently, the 2010 Bonus Income vested in the Debtor at confirmation and did not revest in the estate upon conversion.
Finally, the 2011 Bonus Income, like the 2010 Bonus Income, entered the Chapter 11 bankruptcy estate upon being earned and, because it was earned post-confirmation, did not revest in the Debtor upon confirmation. There is no dispute that the Debtor earned the 2011 Bonus Income from post-petition services rendered post-confirmation.
III.
The Court turns then to whether the 2011 Bonus Income, the only one of the three property interests at issue remaining in the Chapter 11 estate at the time of the conversion, became property of the Chapter 7 estate upon conversion. Again, there appears to be a divergence of opinion on the matter. And again, the debate centers upon the appropriate interpretation of Section 348(a).
In addition to the property owned by a debtor on the petition a date, a Chapter 7 estate includes the “[pjroceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.” 11 U.S.C. '§ 541(a)(6). The estate, under Section 541, may also be enlarged by “[a]ny interest in property that the estate acquires after the commencement of the case.” 11 U.S.C.
Reading Sections 541(a), 1115(a)(2), and 348 together, it is unclear whether an individual Chapter 11 debtor’s post-petition, pre-conversion earnings are included in a post-conversion Chapter 7 estate. On the one hand, upon conversion, the date of the commencement of the case does not change and Section 541(a)(6) prohibits income derived from services performed by a Chapter 7 debtor after commencement from becoming property of the estate. On the other hand, while the case was in Chapter 11, post-petition services income became property of the estate by virtue of Section 1115(a)(2) and Section 541(a)(7), and, unlike in a case converted from Chapter 13, no statutory provision expressly states that such income cannot be included in the converted Chapter 7 estate.
The Debtor directs our attention to In re Markosian,
In explaining its determination, the Markosian Court acknowledged that the Code designates no provision parallel to Section 348(f) — specifically providing that property of the estate for a Chapter 13 case converted to Chapter 7 is construed as of the petition date-for Chapter 11 cases. Id. at 276. However, the court found this of no concern, because Congress added subsection (f) well before it enacted Section 1115 — which conforms Chapter 11 to the other reorganization chapters by making after acquired property of a debtor property of the estate — giving its silence “little ... significance” and because the court construed, based on legislative history, the inclusion of subsection 348® as merely clarification in “resolvpng] a split among courts” about the meaning and pur
The case of In re Evans,
[t]wo lines of cases developed as to the appropriate date for determining what would be considered “property of the estate” in a converted case. Some courts held that, upon conversion from Chapter 13 to 7, the date of conversion would control and all property of the Chapter 13 estate, including, after-acquired property pursuant to § 1306(a), would be included in the Chapter 7 estate. In re Lybrook,951 F.2d 136 , 138 (7th Cir.1991) (holding “the Chapter 13 estate passes unaltered into Chapter 7 upon conversion.”). See Armstrong v. Lindberg (In re Lindberg),735 F.2d 1087 , 1090 (8th Cir.1984) (holding the date of conversion, and not date of filing of the original Chapter 13 petition, determines what exemptions may be claimed); In re Calder,973 F.2d 862 , 866 (10th Cir.1992). Other courts held that the original petition date would control, meaning that a debtor’s “earnings” acquired after the petition date would be excluded by the Earnings Exception, even though § 1306(a) would have included them up to the conversion date. See In re Bobroff,766 F.2d 797 (3d Cir.1985); In re Horton,130 B.R. 326 , 328 (Bankr.D.Colo.1991); In re Gorski,85 B.R. 155 (Bankr.M.D.Fla.1988).
Id. Evans concluded that when Congress amended Section 348 to include subsection (f), “[i]t clearly intended to abrogate the rationale underlying the Lybrook line of cases.” Id. at 440 (citing H.R. Rep. 103-835, reprinted in 1994 U.S.C.C.A.N. 3340, 3366).
The trustee in Evans argued that, under principles of statutory interpretation, where Congress enacts a provision that applies to one section but fails to enact a provision addressing identical language in another section, the omission should be understood as intentional. Id. While acknowledging the argument, the Evans Court disposed of the matter by referencing that the “maxim ... is ‘subordinate to the primary rule that the legislative intent governs the interpretation of the statute. Thus, it can be overcome by a strong indication of contrary legislative intent or policy.’ ” Id. (quoting 2A Norman J. Singer, J.D. Shambie Singer, Statutes and Statutory Construction § 47:23 (7th ed.2007)).
Moreover, Evans found other justifications for Congress’ apparent oversight.
“ ‘[T]his maxim has been held to be inapplicable if there is some special reason for mentioning one thing and none for mentioning another which is otherwise within the statute.’ Thus, it is also possible to interpret the specific reference to Chapter 13 cases in § 348(f) as necessary to resolve a split of authority that had arisen only in cases converted from Chapter 13 to Chapter 7. Otherwise the general language of § 348(a) was sufficient to convey the message in all other contexts.”
Id. at 440-41(quoting 2A Norman J. Singer, J.D. Shambie Singer, Statutes and
Additionally, Evans declared that the “maxim” would also be disregarded where application would “thwart legislative intent.” Id. at 441. Because a debtor would be disadvantaged in Chapter 7 for first attempting a repayment plan under Chapter 11, a contrary interpretation would discourage the use of Chapter 11 for repayment of creditors, a goal that could not “be what Congress intended.” Id. Accordingly, Evans chose to interpret conversion from Chapter 11 as not requiring any different result as that from Chapter 13. Id.
The contrary line of cases relies almost entirely upon Congress’ failure to enact a provision parallel to Section 348(f)(1)(A) for Chapter 11 Debtors. For example, in the case of In re Tolkin,
The language of this statute parallels the language of § 1306, and accomplishes the same goal of broadening the scope of property of the debtor’s estate significantly beyond the parameters of § 541. However, unlike in a Chapter 13 case, there is no provision similar to § 348(f) to modify the result upon conversion of a Chapter 11 case to another chapter.In re Quillen,408 B.R. 601 , 620 n. 33 [ (Bankr.D.Md.2009) ](“... Section 1115 ... is identical to Section 1306. Curiously though, no counterpart to Section 348(f) was codified in BAPCPA to correspondingly adjust the reach of Section 1115.”). Therefore, what is captured as property of the debtor’s estate under § 1115 remains as property of the estate, even after conversion of the case to another chapter.
Id. at *10. Likewise, the court in In re Hoyle,
‘Where the statute’s language is plain, the sole function of the courts is to' enforce it according to its terms, for courts must presume that a legislature says in a statute what it means and means in a statute what it says there.” ... [And] “[i]f Congress enacted into law something different from what it intended, then it should amend the statute to conform it to its intent. ‘It is beyond our province to rescue Congress from its drafting errors, and to provide for what we might think ... is the preferred result.’ ”
Id. at *6 (quoting In re Meruelo Maddux Properties, Inc.,
This Court begins its own analysis with the language of the statute itself, keeping in mind that “[statutory construction ... is a holistic endeavor.” Smith v. U.S.,
At the outset, the Court observes that the statutes are clearly ambiguous as, reading Sections 541(a), 1115(a)(2), and 348(a) together, it is unclear whether post-
“Where there can be more than one reasonable interpretation, “ ‘the courts are left to determine [the statute’s] meaning by looking to the legislative history and employing the [other] canons of statutory construction.’” Lindley v. F.D.I.C.,
Application of this cannon of statutory construction supports the conclusion that, upon conversion of a Chapter 11 case, property of the estate includes the debtor’s post-petition pre-conversion earnings because Section 348(f) excludes such property from the estate only in a Chapter 13 case. In 1994, Congress amended Section 348 to include subsection (f). When a Chapter 13 case is converted, subsection (f) negates the specific impact of Section 1306 by designating property of the estate as “property 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.” 11 U.S.C. § 348(f)(1)(A). It could be argued that Congress’ failure to apply Section 348(f) to Chapter 11 was not intentional, for at the time of the 1994 amendment, Chapter 11 did not have a provision similar to Section 1306, which brings into the estate post-petition service income of an individual debtor. However, Chapter 12 did contain such a provision, and Congress also neglected to apply Section 348(f) to Chapter 12 debtors. See 11 U.S.C. § 1207 (added and amended Pub.L. 99-554, 100 Stat. 3108 (1986)). Section 348(f), by its plain language, only particularizes how estate property is to be determined in cases converted from Chapter 13. Section 348(f) does not limit the broadened scope of Section 1207, and in 2005, when Congress added Section 1115 to Chapter 11, Congress did not amend Section 348. “ ‘Congress is presumed to know the content of existing, relevant law, and ... [,]’ ” unlike the Ninth Circuit’s caution against “divining] congressional intent from congressional silence[,]” see In re Markosian,
The Court is not dissuaded from its holding by the argument made in Evans, and echoed in Markosian, that legislative intent can override the implication that Congress intentionally omits what it fails to include. In re Evans,
The House Report concerning the enactment of Section 348(f) states as follows:
This amendment would clarify the Code to resolve a split in the case of law about what property is in the bankruptcy estate when a debtor converts from chapter 13 to chapter 7. The problem arises because in chapter 13 (and chapter 12), any property acquired after the petition becomes property of the estate, at least until confirmation' of a plan. Some courts have held that if the ease is converted, all of this after-acquired property becomes part of the estate in the converted chapter 7 case, even though the statutory provisions making it property of the estate does [sic] not apply to chapter 7. Other courts have held that the property of the estate in a converted case is the property the debtor had when the original chapter 13 petition was filed.
These latter courts have noted that to hold otherwise would create a serious disincentive to chapter 13 filings. For example, a debtor who had $10,000 equity in a home at the beginning of the case, in a State with a $10,000 homestead exemption, would have to be counseled concerning the risk that after he or she paid off a $10,000 second mortgage in the chapter 13 case, creating $10,000 in equity, there would be a risk that the -home could be lost if the case were converted to chapter 7 (which can occur involuntarily). If all of the debt- or’s property at the time of conversion is property of the chapter 7 estate, the trustee would sell the home, to realize the $10,000 in equity for the unsecured creditors and the debtor would lose the home.
This amendment overrules the holding in cases such as Matter of Lybrook,951 F.2d 136 (7th Cir.1991) and adopts the reasoning of In re Bobroff,766 F.2d 797 (3rd Cir.1985). However, it also gives the court discretion, in a case in which the debtor has abused the right to convert and converted in bad faith, to order that all. property held at the time of conversion shall constitute property of the estate in the converted ease.
140 Cong. Rec. H10770 (daily ed. Oct. 4, 1994) (section-by-section description of H.R. 5116); see also H.R.Rep. No. 835,
A second canon of statutory interpretation — the avoidance of absurd results-supports the Court’s interpretation of the legislative history. See, c.f Shaw v. National Union Fire Ins. Co. of Pittsburgh, Pa.,
Additionally, where a statute requires a court to apply the traditional forms of statutory construction, “one of the most basic interpretive canons” instructs courts to “construe[ ] [the statute] so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant.” Corley v. U.S.,
The Court finds further support in the consonance between this holding and that made in Part I of this Order. Both issues involve events transpiring during the pen-dency of the Chapter 11 — i.e. the effects of confirming a plan and earnings becoming property of the estate by virtue of Section 1115 — and both reject the legal fiction that a converted case was always a Chapter 7 case. To quote Judge Spector,
At the risk of sounding simplistic, one would expect that a case which was converted from chapter 11 to chapter 7 will be analyzed as just that — a case which was converted from chapter 11 to chapter 7. The notion that conversion gives rise to the legal fiction that the case was always a chapter 7 is conceptually awkward, and there is no readily apparent reason why reality must be ignored in this fashion.
In re Winom Tool & Die, Inc.,
Finally, although the Eleventh Circuit has not scrutinized the exact question before this Court, dicta within one of its Chapter 12 cases suggest that it would reach a similar conclusion.
There is one wrinkle in cases, like the present one, which began as Chapter 12 proceedings but were converted to Chapter 7. Section 1207(a) of the Bankruptcy Code, which applies to Chapter 12 cases, expands the definition of property of the estate to include: “all property of the kind specified in such section [§ 541] 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 of this title....”11 U.S.C. § 1207(a)(1). The practical effect of that expansion in the temporal limitation is to move the cutoff date for the acquisition of property from the filing of the bankruptcy case to the time it is converted under Chapter 7.
In re Bracewell,
IV.
The final issues for the Court are to' determine the character of the 2011 Bonus Income and whether these funds are subject to the exemptions claimed by the Debtor in his schedules. As a general rule, a debtor may convert nonexempt assets to exempt assets, so long as he accomplishes it prior to commencement of his case and he converts the property without intent to defraud creditors. See In re Pomerantz,
Pursuant to Section 522(b)(1) of the Bankruptcy Code and Georgia law, O.C.G.A. § 44-13-100(a) applies to determine the Debtor’s entitlement to exemptions in this case. See 11 U.S.C. § 522(b)(1); 11 U.S.C. § 522(b)(2) & (3); O.C.G.A. § 44-13-100(b). Georgia’s ex
Conclusion
For the reasons stated above, the Court finds that the Severance Income and the 2010 Bonus Income vested in the Debtor at confirmation of the Plan and did not become property of the Chapter 7 estate upon conversion. Therefore, no exemption was necessary to remove the property from the Court’s jurisdiction and distribution to creditors. The 2011 Bonus Income, however, became property of the converted estate and is potentially eligible for only a portioned exemption. Accordingly, it is hereby
ORDERED that Rogers’ Objection is SUSTAINED in part and OVERRULED in part. The Debtor’s exemption in the 2011 Bonus Income under O.C.G.A. § 44-13-100(a)(2)(F) is DENIED. Debtor is instructed to amend his schedules within ten (10) days from the date of this Order to depict the 2011 Bonus Income as an independent asset, accompanied by an applicable exemption, if warranted. Should the Debtor wish to avoid any party admissions and reserve issues alluded to by the Court in Footnote 9, he may so designate that the 2011 Bonus Income was disbursed prior to the conversion, so that the Chapter 7 trustee may determine the appropriate course of action. The Severance Income and the 2010 Bonus Income shall be considered vested in the Debtor, free and clear of obligations owed to Rogers.
It is FURTHER ORDERED that the Chapter 7 trustee shall have forty (40) days from the date of this Order to investigate whether further administration of the bankruptcy case is warranted. It appearing that this is the last issue remaining in this Chapter 7 case,
The Clerk is DIRECTED to serve a copy of this Order on Rogers, the Debtor, the Debtor’s attorney, and the Chapter 7 trustee.
IT IS ORDERED.
Notes
. 11 U.S.C. §§ 101 ef. seq.
. The Debtor’s attorney stipulated to the relevant portions of the deposition testimony contained in Rogers pre-hearing Exhibits A and B (Dkt. No. 162), which were proffered by Rogers’ counsel at the December 3rd hearing. See Hr'g Tr. 2:38:00-2:38:20, Dec. 3, 2014.
. There is no binding precedent in the Chapter 11 context guiding the Court as to what property leaves the estate, but based on analogous Eleventh Circuit Court of Appeals holdings in the Chapter 13 context, see infra, that which is not committed to the repayment plan vests in the debtor, thus leaving the estate.
. At first blush, this language, "as is not necessary,” may seem contradictory to the Court’s earlier holding that all property vests in the Debtor, but the holding in Part I distinguishes plans reserving property for the estate from those which do not. Chapter 13 is essentially a contract whereby the Debtor pays over his excess earnings and in return gets to keep certain pre-petition property. In essence, Chapter 13 plans specifically provide for net post-petition earnings to remain property of the estate after confirmation.
. Although this may seem inequitable to creditors, the Court notes that creditors have a means of protecting themselves by rejecting or objecting to confirmation of the Plan.
. Although, this action stems from Rogers objection to exemptions, for initial purposes, the proceedings have transformed it into a declaration that the property in question, or a portion thereof, is property of the Chapter 7 bankruptcy estate, consigning the burden to Rogers. See, e.g. In re Scotchel,
. The Court acknowledges that the Eleventh Circuit occasionally diverges from this position, but it does so only where such inferences prove contrary to clear legislative intent, see In re Piazza,
. The Court in Markosian believed that there was "no reason to treat chapter 11 debtors
. Neither party raised the issue as to whether or not the Debtor still possesses the 2011 Bonus Income or otherwise has control of the funds, and neither party briefed the Court on the potential legal impact should the funds have been previously disbursed by the Debtor. The 2014 deposition of the Debtor suggests that soon after depositing the 2011 Bonus Income into the State Farm retirement account, the Debtor withdrew 2.5 times that amount, primarily to pay for his child’s tuition. See Debtor’s Dep., Jan. 16, 2014, at 25-26 (Dkt. No. 162, Ex. B). Presumably, it would have been the trustee's prerogative to choose whether or not to bring an avoidance action under Section 549 of the Code. Moreover, the Court is uncertain of all transactions in the account, and neither party briefed the issue regarding applicable accounting principles. For purposes of this Order, the Court shall treat the 2011 Bonus Income as if it was still within the control of the Debtor upon conversion. The Court reserves the matter, should the Chapter 7 trustee seek turnover of property of the estate or take any action otherwise appropriate under the Code.
. The Debtor initially applied the wildcard exemption only to $4,410 of property, which was subsequently reduced to $1,110. See Debtor's Schedule C (Dkt. No. 10); Debtor's First Am. Schedule C (Dkt. No. 30).
. The Court recognizes that there is an unresolved motion, objecting to the Debtor’s Chapter 11 discharge and final decree (Dkt. No. Ill) and an unresolved objection, protesting the Debtor’s initial exemptions (Dkt. No. 21). The objection to discharge and final decree appears moot, since this case was converted to Chapter 7. The objection to initial exemptions was presumably rendered moot, either by the Debtor's first set of amended schedules (Dkt. No. 30) or by confirmation of the Plan. Additionally, Rogers chose not to prosecute its adversary complaint objecting to the Debtor's discharge in the Chapter 7 case. See BER Law P.C. v. Freeman, Adv. Proc. 13-1038-WHD.