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Does Home Value Appreciation Become Part of the Ch. 7 Estate if the Case Converts from Ch. 13?

2/15/2022

One of the unanswered questions in consumer law these days is whether appreciation in the value of a home becomes part of the chapter 7 estate if the case converts from chapter 13. The courts are split. Affirming the bankruptcy court and the Bankruptcy Appellate Panel, the Tenth Circuit held that the appreciation in the value of a home sold after confirmation of a chapter 13 plan belongs to the debtor, not to creditors, if the case converts to chapter 7.

In the January 19 opinion by Chief Circuit Judge Timothy Tymkovich, the appeals court was careful to say that it was not ruling on what the result would be in a chapter 13 case converted to chapter 7 before the home was sold. The pivotal statute is Section 348(f)(1), which underwent substantial amendment in 1994.

When a chapter 13 case converts to chapter 7, the section now provides that “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.”

The amendment was intended overrule caselaw holding that property obtained after filing a chapter 13 petition becomes estate property once the case converts to chapter 7.
Narrowing his holding to cases where the home was sold before conversion, Judge Tymkovich found the answer in the plain language of the statute, without need for analysis of legislative history.

Judge Tymkovich identified proceeds as a property interest different from the home itself. On the original chapter 13 filing date, there were no proceeds, only the home itself. “Based on the plain language of Section 348(f)(1)” — that estate property in a converted case is estate property “as of the date of filing of the petition” — he held that the sale proceeds “do not enter the converted Chapter 7 estate.” Rodriguez v. Barrera (In re Barrera), 20-1376 (10th Cir. Jan. 19, 2022).

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Case Review

2/15/2022

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Alix v. McKinsey & Co. Inc., 20-2548
(2d Cir. Jan. 19, 2022)

The district judge believed that the injury to Alix had been caused by the debtors’ decisions not to hire AlixPartners and not by McKinsey’s alleged misconduct. The district judge also believed that the U.S. Trustee would have been the better plaintiff to remedy the alleged misconduct.
Disagreeing, Judge Parker said that the district court had “conflated proof of causation and proof of damages and that it did not draw all reasonable inferences in Alix’s favor.”
Here’s the important bankruptcy angle:
“More importantly,” Judge Parker said, “the district court gave insufficient consideration to the fact that McKinsey’s alleged misconduct targeted the federal judiciary.”
Judge Parker expanded on the idea, suggesting that litigants who can’t show direct harm to afford standing may nonetheless pursue litigation when the integrity of the process is at stake. He said:
[T]his case requires us to focus on the responsibilities that Article III courts must shoulder to ensure the integrity of the Bankruptcy Court and its processes. Litigants in all of our courts are entitled to expect that the rules will be followed, the required disclosures will be made and that the court’s decisions will be based on a record that contains all the information applicable law and regulations require. If McKinsey’s conduct has corrupted the process of engaging bankruptcy advisors, as Alix plausibly alleges, then the unsuccessful participants in that process are directly harmed.
Later, Judge Parker said that “fraud on the Bankruptcy Court committed in the manner alleged by Alix causes direct harm to litigants who are entitled to a level playing field and calls into play our unique supervisory responsibilities.”

Judge Parker also reversed dismissal of Alix’s pay-to-play claim under 18 U.S.C 152(6), which proscribes fraudulently offering money to act or forbear from acting in a bankruptcy case. He said it was “implausible — indeed inconceivable — that any Bankruptcy Court would have approved McKinsey’s retention if Alix’s allegations were substantiated.”
Because Judge Parker was reversing a motion to dismiss, he said that “McKinsey might well prevail on summary judgment or at trial and to be sure, uncertainties at those stages might exist.”

Although not in lawsuits with Alix, the U.S. Trustee Program issued a press release in February 2019 about a settlement where McKinsey agreed to pay $15 million for inadequate disclosure in three chapter 11 cases. In December 2020, the U.S. Trustee Program issued a press release about a separate settlement made in connection with a case in Texas where McKinsey agreed to withdraw its application for retention and waive the recovery of fees for work it had performed. The press release said that the fees and expenses “likely” would have been “millions of dollars.”

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Massachusetts Federal Court Case Result

2/15/2022

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Commercial Litigation Settlement

Sometimes settlement is success. We successfully settled a commercial litigation case in Massachusetts Federal Court. See United States of America v. Trevisone, Jr., Case Number: 1:19-cv-12607-JCB wherein we represented a business owner as Personal Guarantor on an SBA Loan. The case involved issues such as Laches, Statute of Limitations, Foreclosure, failure to mitigate damages and breach of contract.

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Federal Court Case Result

2/15/2022

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Sandra Watkinson vs. Statebridge Co., LLC, Christiana Trust

We won another federal court trial, see in re Watkinson, MA BK Adv. Pro. No. 19-1071-FJB wherein the Court dismissed the remaining counts against the Mortgagee-Servicer-Creditor-Defendants.

The amended complaint asserted Four (4) counts against one or both of the Defendants. In Count I, the Debtor sought damages against both Christiana and Statebridge for violation of provisions of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601 et seq., concerning the obtaining of forced place insurance on the Property.

In Count II, the Debtor sought damages against both Christiana and Statebridge for violation of MASS. GEN. LAWS ch. 93A.

In Count III, the Debtor objected to Christiana’s Proof of Claim, asking that it be disallowed on the basis that Christiana does not hold the promissory note or own the mortgage on which its claim is predicated.

And in Count IV, the Debtor claimed damages against Statebridge (not also Christiana) for another violation of MASS. GEN. LAWS ch. 93A.

The Court also overruled the Debtor’s objection to the Defendants' Proof of Claim. #12 USCA sec. 2605 #Bankruptcy Rule 3001(d) #Bankruptcy Code 11 USC 502(b)(2) # Federal Rule Civil Procedure 15(b)(2) amendments to complaints #MGL 93A sec 2

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Securing Forgiveness of a PPP Loan

2/15/2022

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Athens vs. Bank of America

To secure forgiveness of a PPP loan, the borrower must submit to the lender certain documentation demonstrating that the loan meets the requirements for forgiveness, as well as a certification that the loan proceeds were used for permitted purposes. See 15 U.S.C. § 636m(e). If a borrower fails to provide the necessary documentation, its loan is not eligible for forgiveness. Id. at § 636m(f).

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Legal News

Does Home Value Appreciation Become Part of the Ch. 7 Estate if the Case Converts from Ch. 13?

Case Review

Alix v. McKinsey & Co. Inc., 20-2548
(2d Cir. Jan. 19, 2022)

Massachusetts Federal Court Case Result

Commercial Litigation Settlement

Federal Court Case Result

Sandra Watkinson vs. Statebridge Co., LLC, Christiana Trust

Securing Forgiveness of a PPP Loan

Athens vs. Bank of America

Categories

Archives

Legal News

Does Home Value Appreciation Become Part of the Ch. 7 Estate if the Case Converts from Ch. 13?

Case Review

Alix v. McKinsey & Co. Inc., 20-2548 ​(2d Cir. Jan. 19, 2022)

Massachusetts Federal Court Case Result

Commercial Litigation Settlement

Federal Court Case Result

Sandra Watkinson vs. Statebridge Co., LLC, Christiana Trust

Securing Forgiveness of a PPP Loan

Athens vs. Bank of America

Categories

Archives

Alix v. McKinsey & Co. Inc., 20-2548
(2d Cir. Jan. 19, 2022)