Black v. Leavitt (In re Black)

Citation609 B.R. 518
Decision Date31 December 2019
Docket NumberBAP No. NV-18-1351-FBH,Bk. No. 2:14-bk-12402-ABL
Parties IN RE: Richard L. BLACK, Debtor. Richard L. Black, Appellant, v. Kathleen A. Leavitt, Chapter 13 Trustee, Appellee.
CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit

Christopher Burke argued on behalf of appellant Richard L. Black;

Sarah E. Smith argued on behalf of appellee Kathleen A. Leavitt, Chapter 13 Trustee.

Before: FARIS, BRAND, and HERCHER,* Bankruptcy Judges.

FARIS, Bankruptcy Judge:

INTRODUCTION

Debtor Richard L. Black obtained confirmation of a chapter 131 plan that required him to pay $45,000 to his creditors when he sold or refinanced his rental property. About three years later, he sold the property for $107,000. He proposed to pay $45,000 to his creditors and to retain the excess sale proceeds for himself. Chapter 13 trustee Kathleen A. Leavitt ("Trustee") moved to modify Mr. Black's confirmed plan to require him to pay the excess sale proceeds to his unsecured creditors. The bankruptcy court approved the modified plan.

Mr. Black appeals, arguing that he was not required to commit the excess proceeds to his plan payments. He also argues that the Trustee's motion was untimely and that the modified plan did not meet the statutory requirements for plan confirmation.

We hold that the Trustee's modified plan was timely and complied with the applicable statutes. But we agree with Mr. Black that he was entitled to retain the excess sale proceeds. Accordingly, we REVERSE.

FACTUAL BACKGROUND
A. Mr. Black's bankruptcy case

On April 9, 2014, Mr. Black filed a chapter 7 bankruptcy petition that he prepared with the assistance of a bankruptcy petition preparer. He scheduled real property located in Las Vegas, Nevada (the "Property"), valued at $52,300. He claimed a $52,300 homestead exemption in the Property.2

The chapter 7 trustee objected to Mr. Black's claimed homestead exemption in the Property, which he did not live in, but rented out at $850 per month. He also moved for turnover of the rental proceeds as nonexempt assets.

Mr. Black received his chapter 7 discharge. Shortly thereafter, Mr. Black (through counsel) moved to convert his chapter 7 case to one under chapter 13. Among other reasons, he stated that, when he initially filed his chapter 7 petition, he did not realize that he could lose the Property. The chapter 7 trustee opposed the motion to convert.

Before ruling on the motion to convert, the bankruptcy court sustained the chapter 7 trustee's objection to the claimed homestead exemption in the Property and granted the motion for turnover. The bankruptcy court later granted Mr. Black's motion to convert.

Mr. Black filed amended schedules. He identified the Property as a rental property and decreased its value to $44,000.

B. The chapter 13 plan

Mr. Black filed his proposed chapter 13 plan in which he proposed paying $250 per month for fifty-nine months, totaling $14,750. He proposed an additional payment of $41,000 in the fourth year upon sale or refinancing of the Property.

The Trustee objected to confirmation of the plan. Among other things, she argued that "[t]he Plan fails to meet liquidation value [ 11 USC § 1325(a)(4) ] based on the following non-exempt property: $44,000 Rental property."

In response, Mr. Black filed an amended plan to address concerns not relevant to this appeal. He still proposed to pay $250 per month for fifty-nine months. But he increased to $45,000 the lump sum payment upon sale or refinancing of the Property.

As a below-average-income debtor, his applicable commitment period was three years. The plan provided:

Monthly payments must continue for the entire commitment

period unless all allowed unsecured claims are paid in full in a shorter period of time, pursuant to § 1325(b)(4)(B). If the applicable commitment period is 3 years, Debtor may make monthly payments beyond the commitment period as necessary to complete this plan, but in no event shall monthly payments continue for more than 60 months.

The plan also provided that "[a]ny property of the estate scheduled under § 521 shall vest in Debtor upon confirmation of this Plan."

The Trustee did not object to the amended plan, and the court confirmed the plan. Mr. Black faithfully made his monthly plan payments for several years.

C. The sale of the Property

About three years later, Mr. Black filed a motion to sell the Property ("Motion to Sell"). He stated that he intended to sell the Property for $107,000, pay $45,000 to his unsecured creditors, and retain $50,689 (the remaining amount after costs of sale) for himself.

The Trustee opposed the Motion to Sell. She stated that she did not object to the sale of the Property but objected to Mr. Black retaining any of the proceeds of the sale. She argued that the proceeds were property of the chapter 13 estate under § 541 as "property that the debtor ‘acquires after commencement of the case but before the case is closed, dismissed, or converted’ " under § 1306(a)(1). She stated that Mr. Black did not claim an exemption in the Property, so he must turn over all funds stemming from the sale of the Property to the Trustee for distribution to creditors.

The bankruptcy court found that the Property was property of the estate and that the sale was a reasonable exercise of Mr. Black's business judgment. It granted the Motion to Sell ("Sale Order") and ordered that $49,000 should be paid to the Trustee and that the remaining funds should be held by Mr. Black's attorney pending further order of the court.

D. The Trustee's motion to modify the plan

The Trustee filed Modified Chapter 13 Plan #3 ("Modified Plan"), which amended Sections 1.08, 1.09, and 1.10 of the confirmed plan to commit the additional $52,000 sale proceeds to the plan. As such, the estate would receive: (1) the fifty-nine monthly payments of $250 per month, (2) $49,000 from the sale of the Property pursuant to the Sale Order, and (3) the additional $52,000 sale proceeds. She stated that the Modified Plan would require Mr. Black to "pay all disposable income to the Plan for the plan term as well as turn over non-exempt property of the estate. The increased payment will result in an additional distribution to filed and allowed non-priority general unsecured creditors."

Mr. Black objected to the Modified Plan. He argued that the Modified Plan did not comply with §§ 1329, 1322, and 1325 because it "does not propose a new plan payment or plan length. It only adds or adjusts a few sections of the plan. In other words, a debtor could not propose a modification in this way and have it confirmed."

He also argued that the proposed modification was untimely, because he had completed his plan payments. He was only required to complete a 36-month plan under § 1322(d)(2)(A) but agreed to a 59-month plan. He was forty-eight months into his plan term when he sold the Property and paid the Trustee the remaining balance due under the plan from the sale proceeds. Thus, he completed his plan, and the Trustee cannot modify a completed plan.

Finally, he argued that, under McDonald v. Burgie (In re Burgie) , 239 B.R. 406 (9th Cir. BAP 1999), the sale proceeds were not disposable income that he must commit to the plan, and he cannot be compelled to use the proceeds of the postpetition sale of prepetition real estate to pay creditors under a chapter 13 plan.

In response, the Trustee argued that the Modified Plan satisfied §§ 1329, 1322, and 1325 because it only amended three sections and incorporated the rest of the confirmed plan.

She also argued that the Modified Plan was timely because she filed it before the end of the 59-month plan term. Even though Mr. Black paid off the dollar amount due under the plan, the plan was still subject to modification during the full plan term.

Finally, the Trustee argued that the sale proceeds were property of the estate under § 1306 that should be turned over to the Trustee. She stated that Mr. Black originally valued the Property at $44,000, but later acquired additional value in the property. When granting the Motion to Sell, the bankruptcy court held that the sale proceeds were property of the estate, so she contended that they must be turned over to the estate for distribution. She distinguished Burgie , arguing that in Burgie we considered whether the sale proceeds were disposable income, which was not the case here.

In his reply brief, Mr. Black argued that the Trustee's Modified Plan did not comply with the applicable statutes, because it failed to account for his future earnings; to prove that he will be able to make all plan payments; to estimate payments to general unsecured creditors; and to account for the increased trustee fee.

He also argued that the Modified Plan was untimely because it was proposed outside of the "temporal window" of the 36-month applicable commitment period.

Finally, Mr. Black argued that the confirmed plan provided that the property of the estate would vest in the debtor at confirmation. Additionally, the Property was acquired prepetition, so it was not after-acquired property contemplated by § 1306.

After a hearing, the bankruptcy court approved the Modified Plan. It first held that the Modified Plan was timely. It acknowledged that the confirmed plan had a "payment term of 59 months from and after May 9, 2014, thus in the context of Section 1329(c), the Court has already approved a plan payment term that exceeds the 36-month applicable commitment period, which is a temporal minimum." However, it held that "a bankruptcy court may modify a plan at any time after plan confirmation so long as the modification occurs before the completion of payments under the plan." It then concluded that the payments under the confirmed plan had not yet been completed: "Payments under a plan have to continue for the duration provided for in the initial plan, absent modification, before being considered ‘complete’ for purposes of modification and discharge."

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7 cases
  • In re Aquino
    • United States
    • United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Nevada
    • May 25, 2021
    ...on that basis - - even where an acknowledged split of authority exists on the relevant legal issue. See Black v. Leavitt (In re Black), 609 B.R. 518, 526-28 (9th Cir. BAP 2019).393 ECF No. 1, pp. 16 and 36 of 55.394 ECF No. 1, p. 37 of 55, Part 2, para. 5, line 5b.395 ECF No. 20, p. 2 of 4,......
  • In re Aquino
    • United States
    • United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Nevada
    • May 25, 2021
    ...on that basis - - even where an acknowledged split of authority exists on the relevant legal issue. See Black v. Leavitt (In re Black), 609 B.R. 518, 526-28) (9th Cir. BAP 2019). 393. ECF No. 1, pp. 16 and 36 of 55. 394. ECF No. 1, p. 37 of 55, Part 2, para. 5, line 5b. 395. ECF No. 20, p. ......
  • In re Elassal
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    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
    • August 28, 2023
    ...In re Burgie, 239 B.R. 406 (B.A.P. 9th Cir. 1999); In re Euler, 251 B.R. 740 (Bankr. M.D. Fla. 2000); Black v. Leavitt (In re Black), 609 B.R. 518 (B.A.P. 9th Cir. 2019); Willard v. Preuss (In re Willard), No. 21 Civ 10220, 2023 WL 2601769 (S.D.N.Y. March 22, 2023); see also In re Ash'shadi......
  • In re Baker
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado
    • September 29, 2020
    ...907 (N.D. Tex. 2014). The Trustee relies heavily on these decisions, but the Court finds them unpersuasive. In Black v. Leavitt (In re Black) , 609 B.R. 518 (9th Cir. BAP 2019), the court analyzed the interplay between §§ 1306(a) and 1327(b) in the context of property appreciating in value ......
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2 books & journal articles
  • The Housing Bubble and Consumer Bankruptcy (Parts III and IV).
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    • American Bankruptcy Law Journal Vol. 97 No. 3, September 2023
    • September 22, 2023
    ...must stay in the plan for three years but may request a longer term if needed to lower monthly payments. Black v. Leavitt (In re Black), 609 B.R. 518 (B.A.P. 9th Cir. (10) [section] 1327(c). (11) [section][section] 1127(e), 1329(a). (12) Klein v. Anderson (In re Anderson), 613 B.R. 279 (B.A......
  • Postpetition Proceeds of Exempt Interests in Property: Who Owns the Appreciation?
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    • American Bankruptcy Law Journal Vol. 95 No. 4, December 2021
    • December 22, 2021
    ...LUNDIN ON CHAPTER 13, [section] 120.3, [paragraph] [9] (Feb. 25, 2017) (citations omitted). Compare Black v. Leavitt (In re Black), 609 B.R. 518, 529 (B.A.P. 9th Cir. 2019), Calif. Franchise Tax Bd. v. Jones (In re Jones), 420 B.R. 506, 514 (B.A.P. 9th Cir. 2009), In re Baker, 620 B.R. 655,......

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