{"id":1035,"date":"2020-04-24T04:19:47","date_gmt":"2020-04-24T04:19:47","guid":{"rendered":"http:\/\/www.fremont-bankruptcy-attorney.com\/blog\/?p=1035"},"modified":"2020-05-04T18:05:01","modified_gmt":"2020-05-04T18:05:01","slug":"can-i-keep-an-increase-in-income-inheritance-and-increases-in-equity-in-my-house-after-filing-chapter-13-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/2020\/can-i-keep-an-increase-in-income-inheritance-and-increases-in-equity-in-my-house-after-filing-chapter-13-bankruptcy\/","title":{"rendered":"Can I Keep An Increase In Income Inheritance and Increases In Equity In My House After Filing Chapter 13 Bankruptcy?"},"content":{"rendered":"\n

By Ryan C. Wood<\/a><\/p>\n\n\n\n

Maybe, maybe and yes are the short answers.\u00a0 Whether the chapter 13 is confirmed or approved is very important.\u00a0 Below is the relevant law and Bankruptcy Code sections governing these issues when filing a chapter 13 bankruptcy case.\u00a0 <\/p>\n\n\n\n

Income Increases or\nWindfall of Income After You Confirm Your Chapter 13 Plan<\/strong><\/p>\n\n\n\n

A recent Ninth Circuit Bankruptcy Appellate Panel decision\nwas published addressing this issue.  <\/p>\n\n\n\n

In re Steven William Berkeley, BAP No. NC-19-1197-FBTa\n(April 17, 2020)  <\/p>\n\n\n\n

Like many things in life timing is everything.\u00a0 For Mr. Berkeley he was blessed with owning stock and then receiving $3.8 million from the stock when the company he worked for was purchased. In the real world how wonderful. In the bankruptcy world wait a minute.\u00a0 The problem was the $3.8 million was received around the 57 month of the 60 month chapter 13 plan.\u00a0 Mr. Berkeley only had 3 months to go and in theory he could have kept the entire $3.8 million from the stock; in theory. When the chapter 13 case was filed he was getting paid $50,000 a year.\u00a0 After the chapter 13 plan was confirmed or approved by the Court he received stock options in the company he worked for.\u00a0 That company was bought out resulting in Mr. Berkeley receiving the $3.8 million.\u00a0 When something like this comes up notifying the chapter 13 trustee is generally recommended for proper disclosure even if you believe the windfall is not part of the bankruptcy estate.\u00a0 The trustee\u2019s office in this case argued this increase of income, or windfall, should to go the benefit of his creditors while Mr. Berkeley argued he should not have to pay any of the $3.8 million to creditors.\u00a0 The lower Bankruptcy Court agreed with the chapter 13 trustee and Mr. Berkeley appealed.\u00a0 The Ninth Circuit BAP affirmed the lower Bankruptcy Court\u2019s holding that the income derived from the stock options was an increase in income and a change in circumstances.\u00a0 This means the chapter 13 plan can be modified post-confirmation pursuant to Section 1329 of the Bankruptcy Code to increase the chapter 13 plan payout to creditors.\u00a0 In this case Mr. Berkeley will have to pay $202,000 into the chapter 13 plan and pay 100% of his debt now.\u00a0 Prior to this windfall Mr. Berkeley was paying back 1% of his nonpriority general unsecured debts.<\/p>\n\n\n\n

Section 1329(a) provides that, \u201c[a]t any time after\nconfirmation of the plan but before the completion of payments under such plan,\nthe plan may be modified\u201d to \u201cincrease or reduce the amount of payments on\nclaims of a particular class provided for by the plan[.]\u201d \u00a7 1329(a) of the\nBankruptcy Code.<\/p>\n\n\n\n

Increases in income can be captured by creditors by filing a\nmotion to modify the confirmed chapter 13 plan. \nDanielson v. Flores (In re Flores), 735 F.3d 855 (9th Cir. 2013)  <\/p>\n\n\n\n

Of course the motion to modify can be opposed by the bankruptcy filer and their bankruptcy attorney<\/a>.  It is within the Court\u2019s discretion whether the motion to modify is granted or not.  In this appeal Mr. Berkeley was arguing the Bankruptcy Court abused its discretion by granting the motion to modify to include the $3.8 million.  <\/p>\n\n\n\n

A wrinkle is the revesting of property of the bankruptcy\nestate upon confirmation of the chapter 13 plan.  The revesting of the bankruptcy estate to the\ndebtor terminates the bankruptcy estate. \nThis is true, but <\/p>\n\n\n\n

Increase In Value of\nHouses or Real Property During A Chapter 13 Bankruptcy Case  <\/strong><\/p>\n\n\n\n

In a recent Ninth Circuit Bankruptcy Appellate decision, Black v. Leavitt (In re Black), 609 B.R. 518 (9th Cir. BAP 2019), the Ninth Circuit BAP held and reaffirmed that the estate terminates at confirmation.  The Court provide that \u201cthe revesting provision of the confirmed plan means that the debtor owns the property outright and that the debtor is entitled to any post-petition appreciation.\u201d  This means a chapter 13 bankruptcy filer can after confirmation of their chapter 13 plan sell their house, keep the equity, and continue with the chapter 13 plan payments to fulfill their obligation under the confirmed terms of the plan or payoff the chapter 13 plan and receive their discharge early.  This issue has been more of a problem when a chapter 13 is converted to chapter 7.  Section 348 of the Bankruptcy Code, Effect of Conversion, governs this issues though and the plain language of Section 348(f)(2) is not ambiguous regarding this issues.  Section 348(f)(2) provides: (2)<\/strong> \u201cIf 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 of the estate in the converted case shall consist of the property of the estate as of the date of conversion.\u201d  If for some reason it is determine the conversion from chapter 13 to chapter 7 is in bad faith, then and only then, is the property of the estate what exists at the time of conversion.  Otherwise property of the bankruptcy reverts back to the original date the chapter 13 case was filed.  This has been a major issue when converting from chapter 13 to chapter 7 and overzealous chapter 7 trustees seeking to sell homes upon conversion to chapter 7.  <\/p>\n\n\n\n

The problem is the misunderstood language in Section\n348(f)(1)(B). <\/p>\n\n\n\n

Section 348(f)(1) provides: 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\u2014 <\/p>\n\n\n\n

(A)<\/strong> property of the estate in the converted case shall consist of 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; (B)<\/strong> valuations of property and of allowed secured claims in the chapter 13 case shall apply only in a case converted to a case under chapter 11 or 12, but not in a case converted to a case under chapter 7, with allowed secured claims in cases under chapters 11 and 12 reduced to the extent that they have been paid in accordance with the chapter 13 plan; and<\/p>\n\n\n\n

So 348(f)(1)(A) first provides the property of the estate consists of property of the estate, as of the date of the filing of the petition, original petition, that remains of or is under the control of the debtor on the date of conversion; consistent and the same as 348(f)(2).  The wrinkle and misunderstood language is underlined above regarding valuations of property and of allowed secured claims in the chapter 13 case shall apply only in a case converted to a case under Chapter 11  or Chapter 12, but not in a case converted to a case under chapter 7.  Valuations mean valuations of purposes of reducing the amount a secured creditors claim as part of the plan of reorganization.  In plans of reorganization a secured creditors claim is only secured up to the value of the collateral.  We routinely file motions to value property pursuant to Section 506 of the Bankruptcy Code to reduce the amount of a secured claim to the value of the collateral, not what was owed at the time the case was filed.  A motion to value a car results in a valuation of the car paid via the plan of reorganization.  If the valuation is ordered before the conversion to another chapter that is a reorganization chapter, such as chapter 11 or chapter 12, naturally and according to 348(f)(1)(B) above you would not have to file another motion to value the same collateral.  The valuation already determined would be applicable for purposes of the chapter 11 plan or chapter 12 plan.  However, chapter 7 is not reorganization of debts but liquidation.  So the valuation previously obtained would not be apply in the chapter 7 liquidation.  This unfortunately is mistakenly interpreted as the value of a house in a chapter 13 case is not the value to be used in a case converted from chapter 13 to a chapter 7.  The value of a house  reverts back to when the case was filed when a chapter 13 plan is confirmed and then the case is converted to chapter 7, unless pursuant to Section 348(f)(2) the conversion was in bad faith.  It is all there and makes perfect sense.  Many bankruptcy attorneys<\/a> fail to understand this dynamic and chapter 7 and judges do not given understand given they have not practiced chapter 13 bankruptcy prior to becoming a chapter 7 trustee or judge.  It is a huge problem.<\/p>\n\n\n\n

Inheritance Received\nAfter Chapter 13 Case Commenced<\/strong>  <\/p>\n\n\n\n

First we must start with the Bankruptcy Code.<\/p>\n\n\n\n

Section 541(a)(5) provides in relevant part: (a) The\ncommencement of a case under . . . this title creates an estate.  Such estate is comprised of all the following\nproperty, wherever located and by whomever held: . . . . (5) Any interest in property\nthat would have been property of the estate if such interest had been an\ninterest of the debtor on the date of the filing of the petition, and that the\ndebtor acquires or becomes entitled to acquire within 180 days after such date\n\u2013 (A) by bequest, devise, or inheritance.<\/p>\n\n\n\n

But then in addition for Chapter 13 case we have Section\n1306(a)(1) to consider which provides: (a) Property of the estate includes, in\naddition to the property specified in section 541 of this title (1) all property\nof the kind specified in such section that the debtor acquires after the\ncommencement of the case but before the case is closed, dismissed, or converted\nto a case under chapter 7, 11, or 12 of this title, whichever occurs first.<\/p>\n\n\n\n

So does the language in Section 1306 expand the 180 day\nlimitation provided in Section 541(a)(5)? \nCourts have overwhelming said yes based upon the legislative\nhistory.  So property of the estate in a\nchapter 13 case is expanded to include property specified in section 541 but\nwithout any of the timing limitations. \nIn a chapter 13 case property of the estate includes property of the\nkind specified in Section 541 after the commencement of the chapter 13 case but\nbefore the chapter 13 case is closed, dismissed or converted to chapter 7, 11\nor 12; whichever occurs first as provided above in Section 1306(a).<\/p>\n\n\n\n

This issues boils down to statutory interpretation as\nwell.  Section 541 is a general provision\ngoverning bankruptcy case while Section 1306 is a specific section dedicated to\nchapter 13 bankruptcy cases.  If the big\numbrella of Section 541 already blocks the rain, the 180 day period, how does the\nSection 1306 umbrella even get rain that is already blocked and become relevant\nas to this issue?  I argue that Section\n1306 incorporates the 180 day limitation. \nSo Section 1306 makes the limitation in Section 541 meaningless.  The 180 day limitation and other such\nlimitations are to prevent bankruptcy filers from gaming the system or timing\nthe bankruptcy filing to not include an asset such as inheritance.  If someone knows they have a sick family member\nand they will receive inheritance timing the bankruptcy is difficult or not\npossible given the 180 day limitation. \nThe 180 day limitation is to prevent abuse.  This goal of Section 541 is now rendered meaningless\nin chapter 13 cases?  <\/p>\n","protected":false},"excerpt":{"rendered":"

By Ryan C. Wood Maybe, maybe and yes are the short answers.\u00a0 Whether the chapter 13 is confirmed or approved is very important.\u00a0 Below is the relevant law and Bankruptcy Code sections governing these issues when filing a chapter 13 bankruptcy case.\u00a0 Income Increases or Windfall of Income After You Confirm Your Chapter 13 Plan […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[35,95],"tags":[303,352,350,239],"_links":{"self":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1035"}],"collection":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/comments?post=1035"}],"version-history":[{"count":7,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1035\/revisions"}],"predecessor-version":[{"id":1050,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1035\/revisions\/1050"}],"wp:attachment":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/media?parent=1035"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/categories?post=1035"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/tags?post=1035"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}