In re Burt, Case No. 01-43254-JJR-7 (Bankr. N.D. Ala. 7/31/2009)
| Decision Date | 31 July 2009 |
| Docket Number | Case No. 01-43254-JJR-7.,A. P. No. 09-40016-JJR. |
| Parties | In re: JOE RUSH BURT and LYNN BURT, Debtors. ROCCO J. LEO, as Trustee of the Estate of Joe Rush Burt and Tracy Burt, Debtors, Plaintiff, v. JOE RUSH BURT and LYNN BURT, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
This matter came before the Court on the Defendants' Motion for Partial Summary Judgment (AP Doc. 17) and the Trustee's Response to Defendants' Motion for Partial Summary Judgment and Memorandum Brief in Support Thereof (AP Doc. 22). The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the General Order of Reference, as amended, entered by the United States District Court for the Northern District of Alabama. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2); therefore, the Court has authority to enter a final order.
For the reasons stated below, the Court is granting the Defendants' Motion. In compliance with Rule 7052(a) of the Federal Rules of Bankruptcy Procedure, the following shall constitute the Court's findings of facts and conclusions of law.1
FINDINGS OF FACTS:
On September 5, 2001, the Defendants filed a case under chapter 13 of the Bankruptcy Code,2 and on August 23, 2006 they converted the case to one under chapter 7. In their schedules the Defendants listed two parcels of real property which they valued at $62,700.00. Their schedules also reflected the real property was encumbered by a mortgage in the approximate amount of $45,000.00 held by First State Bank.3 Thus on the petition date, according to the Defendants' schedules, they had approximately $17,700.00 equity in their real property. During the course of the chapter 13 case the Defendants made payments on the mortgage and when the case was converted to chapter 7 the mortgage had been reduced to $20,034.20. The Defendants entered into a reaffirmation agreement with the Bank to pay the remaining mortgage debt. Due to payments made by the Defendants, at the time of conversion the equity had increased to $42,665.80. The Trustee claims the equity on the conversion date, less any exemption to which the Defendants' may be entitled, is property of the chapter 7 bankruptcy estate. In other words, the Trustee claims the increased equity created by the Defendants' payments on the mortgage during the chapter 13 case inured to the benefit of the chapter 7 estate. Obviously the Defendants disagree, and argue that the equity to which the Trustee is entitled must be determined as of the date the chapter 13 case was filed, not the conversion date.
STANDARD OF REVIEW FOR SUMMARY JUDGMENT:
In his Complaint, the Trustee asks the Court to determine the interest of the chapter 7 estate in the Defendants' real property. As mentioned, the Trustee claims the equity as of the conversion date belongs to the estate, while the Defendants argue the equity should be determined as of the chapter 13 petition date. In their Motion, the Defendants assert there are no material facts in dispute and that the correct application of Section 348(f)(1) to these undisputed facts entitle them to a judgment as a matter of law with regard to the issue of when the equity should be determined. The exact amount of the equity to which the Trustee would be entitled, if any, is not addressed by the Defendants' Motion.
Fed.R.Civ.P. 56(c) is made applicable to Rule 7056 in bankruptcy proceedings. Asbestos Settlement Trust v. City of New York (In re Celotex Corp.)., 487 F.3d 1320, 1328 (11th Cir. 2007). Summary judgment is appropriate where, as here, there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Nat'l Parks Conservation Ass'n v. Norton, 324 F.3d 1229 (11th Cir. 2003). The Court may consider pleadings, discovery, and affidavits submitted in ruling on such a motion. Id. The burden of proof lies with the movant, and the Court must view all materials presented and all factual inferences in the light most favorable to the non-moving party. Id. The Court finds that the Defendants have met their burden.
CONCLUSIONS OF LAW:
The chapter 13 case was filed before the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), but it was converted to chapter 7 after BAPCPA went into effect. Nonetheless, Section 348(a), which was not amended by BAPCPA, provides that conversion "does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief." Thus, the pre-BAPCPA Code controls the outcome of this adversary proceeding, and in particular pre-BAPCPA Section 348(f)(1).4
Section 348(f)(1) reads as follows:
(f)(1) Except as provided in paragraph (2) [not applicable here], when a case under chapter 13 of this title is converted to a case under another chapter under this title —
(A) 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; and
(B) valuations of property and of allowed secured claims in the chapter 13 case shall apply in the converted case, with allowed secured claims reduced to the extent that they have been paid in accordance with the chapter 13 plan.
The parties agree that pursuant to Section 348(f)(1)(A), the estate in the converted case consists of property in the chapter 13 estate as of the petition date to the extent such property remained in possession or control of the Defendants on the date of conversion. To determine what was estate property at the time the chapter 13 was filed requires an examination of Sections 541(a) and 1306. In pertinent part Section 541(a) provides:
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section [not applicable here], all legal or equitable interests of the debtor in property as of the commencement of the case.
Section 1306(a) provides that, in addition to the property set out in Section 541, property of the chapter 13 estate includes certain property acquired by a debtor after the petition date. However under Section 348(f)(1)(A) such after-acquired property does not become property of the chapter 7 estate upon conversion.
The parties also agree that the chapter 7 estate includes the equity existing in the Defendants' real property at the time the chapter 13 petition was filed, and that the value of the real property is determined as of the chapter 13 filing date. The parties further agree, as does most of the case law,5 that increased equity resulting from post petition appreciation is not estate property in the converted case. The parties' views diverge at the point of determining who is entitled to the increased equity resulting from mortgage payments made by the Defendants while the case was under chapter 13.
The Trustee relies on Section 348(f)(1)(B) which provides that "allowed secured claims [shall be] reduced to the extent that they have been paid in accordance with the chapter 13 plan," and takes the position that the estate is entitled to the equity in the property resulting from the Bank's claim being reduced by payments made during the chapter 13. The Trustee asserted in his Response that:
Applying the plain language of the statute to the facts set forth in the Defendants' Motion for Partial Summary Judgment yields the following result: the Defendants' real property is property of their Chapter 7 bankruptcy estate having the same value as of the time of the filing of their Chapter 13 bankruptcy case, but only encumbered to the extent of the value of the claim secured by such property upon conversion of the case to Chapter 7. Trustee's Response at p. 2.
The Trustee cited In re Wegner, 243 B.R. 731 (Bankr. D. Neb. 2000), in support of his position. In Wegner, the debtor paid down her mortgage debt during the pendency of her chapter 13 case. Id. at 732. She attempted to claim a homestead exemption when she converted her case. Id. at 733. The trustee objected on the grounds that when the debtor filed chapter 13 there was no equity in which she could claim a homestead exemption. Id. The court determined that the equity resulting from appreciation was not property of the estate because of Section 348(f)(1). Id. at 734-35. However, the equity resulting from the debtor's payments during the chapter 13 case was treated differently. According to the Wegner court, Section 348(f)(1) protects equity cushions resulting from property appreciation Id. at 735.
The Defendants would have this Court calculate the equity based on the property value and outstanding mortgage debt as of the chapter 13 petition date. In In re Pruneskip, the Bankruptcy Court for the Middle District of Florida adopted the position taken by Defendants, holding that the chapter 7 trustee was not entitled to a turnover of equity since there was no equity as of the filing date. In re Pruneskip, 343 B.R. 714, 716 (Bankr. M.D. Fla. 2006).
In Pruneskip, the debtor owned two 1998 Ford Windstars when he filed his chapter 13 case, each encumbered by a lien that exceeded the value of the vehicle. Id. at 715. The lienholders filed claims but were not paid through the trustee. Id. After the debtor converted his case, the chapter 7 trustee filed a motion seeking turnover of the non-exempt equity in the Windstars that had accrued during the pendency of the chapter 13 case. Id. at 716. The bankruptcy court defined the issue as...
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