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