In re John

• Decision Date: 04 October 2006
• Docket Number: No. 03-70514 LMK.,03-70514 LMK.
• Citation: 352 B.R. 895
• Parties: In re Timothy Alan JOHN & Cheryl Stilwell John, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Florida

352 B.R. 895

In re Timothy Alan JOHN & Cheryl Stilwell John, Debtors.

No. 03-70514 LMK.

United States Bankruptcy Court, N.D. Florida, Tallahassee Division.

October 4, 2006.

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Allen P. Turnage, Tallahassee, FL, for Debtors.

MEMORANDUM OPINION ON TRUSTEE'S MOTION TO COMPEL TURNOVER

LEWIS M. KILLIAN, JR., Bankruptcy Judge.

THIS MATTER came before the Court for hearing August 18, 2006 on the Chapter 7 Trustee's Motion to Compel Turnover of Personal Property (Doc. 89). The Chapter 7 Trustee brought the motion after being appointed to this case when the Debtors voluntarily converted from Chapter 13 to Chapter 7. As a consequence of conversion, the newly-appointed Chapter 7 Trustee became obliged to collect the estate's property under 11 U.S.C. § 704(a)(1). To this end, the Trustee now seeks turnover of property scheduled in the original Chapter 13 petition, alleging that such property belongs to the estate in the Chapter 7 case. The question for this Court is whether the property scheduled by the Debtors in their original Chapter 13 petition is property of the estate in the case converted to Chapter 7 and thus subject to liquidation. This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(b)(2)(E), and 1334. For the reasons set forth more fully herein, and despite the Debtors' arguments to the contrary, the motion shall be granted because the property sought by the Trustee is property of the estate according to 11 U.S.C. § 348(f)(1)(A). Having read the pleadings, having heard the argument of counsel, and being otherwise advised, I make the following findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052.

FACTS

The Debtors filed their voluntary Chapter 13 petition on May 2, 2003. Their schedules included $3,660 worth of certain unencumbered, nonexempt, personal property (the Property), which is at issue in this case.¹ After the Chapter 13 plan was confirmed on October 29, 2003, the Debtors retained possession of the Property and made substantial payments to the Trustee pursuant to the plan: $62,708 was paid into the plan, over $42,000 of which was distributed to unsecured creditors. Eventually, however, the Debtors defaulted on their payments, and they voluntarily converted the case to one under Chapter 7 on February 20, 2006.

The Chapter 7 Trustee now seeks turnover of the Property scheduled by the Debtors in their original petition. The Debtors respond that the Property is no longer property of the estate because it "vested in the Debtors upon confirmation of their plan" in Chapter 13, and therefore the estate has no interest in the Property the Trustee now seeks to administer. Debtor's Brief (Doc. 93); See 11 U.S.C. § 1327(b). The Trustee argues that this case is controlled by 11 U.S.C. § 348(f)(1)(A), which provides that property of the Chapter 7 estate consists of property of the estate on the date of petition that remains in the possession of the debtor at the time of conversion. The Debtors counter in the alternative that any interest the Trustee might have had in the Property has been satisfied by their payments under the Chapter 13 plan. While one might think a fact pattern of this sort would be simple and routine, this Court has been unable to find any reported cases directly on point in its own research.

ANALYSIS

A debtor may convert a case from Chapter 13 to Chapter 7 at any time. 11 U.S.C. § 1307(a). Conversion of the case constitutes an order for relief under Chapter 7 and terminates the service of the Chapter 13 Trustee. 11 U.S.C. §§ 348(a) and (e). Consequently, a new Trustee is appointed to proceed with the case under Chapter 7. 11 U.S.C. § 701(a)(1). The Chapter 7 Trustee is then statutorily obligated to perform certain duties, such as collecting the property of the estate and reducing it to money. § 704(1). To carry out this task, the Trustee must ascertain the property that should be included as "property of the estate" in the Chapter 7 case.

Property of the estate in a case converted to Chapter 7 from Chapter 13 is comprised of property of the estate as of the date the petition was filed that remains in the possession or control of the debtor on the date of conversion. 11 U.S.C. § 348(f)(1)(A). Property of the estate in a case converted from Chapter 13 to Chapter 7 has two characteristics: (1) the property must have been property of the estate on the date of petition; and, (2) the property must have remained in the possession or control of the debtor on the date of conversion. Id. In other words, property of the estate in the Chapter 7 case "is determined according to the filing date of the original Chapter 13 petition." In re Stamm, 222 F.3d 216, 218 (5th Cir.2000) (quoting In re Alexander, 239 B.R. 911, 916 (8th Cir. BAP 1999)). Section 348(f)(1)(A) creates a continuity such that property of the estate on the date that the original Chapter 13 petition was filed becomes property of the estate in the case converted to Chapter 7, provided that it is still in the possession or control of the debtor. See In re Bracewell, 454 F.3d 1234, 1239 (11th Cir.2006) (noting that the concept of property of the estate is temporal in nature). Put differently, property is not property of the estate in the converted case if it is acquired by the debtors after the date of petition, or it is not in their possession or control on the date of conversion. Property of the estate on the date of petition includes all legal or equitable interests of the debtor as of that date, among other interests in property. 11 U.S.C. § 541(a)(1).

In this case, the Trustee seeks turnover of Property which the Debtors owned on the date of petition. The Debtors listed the Property in Schedule B of their original Chapter 13 petition. In their brief and in open court, the Debtors have asserted that the Property at issue should "no longer" be considered property of the estate, and that such Property remained in the Debtors' possession on the date of conversion. See Debtor's Brief (Doc. 93). Thus, on the date that the original Chapter 13 petition was filed, the Property was in fact property of the estate, and the Property seems to have remained in the Debtors' possession on the date that the case was converted to Chapter 7. To the extent that it did remain in the possession of the Debtor on the date of conversion, it is clear that the Property the Trustee seeks in her motion is property of the estate in the converted Chapter 7 case. See 11 U.S.C. § 348; Wegner, 243 B.R. 731, 734 (Bankr.D.Neb.2000) (concluding summarily that, upon conversion, a homestead owned by the debtors at the time of petition which remained in their possession at the time of conversion was property of the estate in the converted case).

DISCUSSION

The Debtors have advanced several arguments to avoid this result. For example, they refer to 11 U.S.C. § 1327 to support the assertion that, since the Property at issue vested in the Debtors under the Chapter 13 plan, it is not part of the converted estate and therefore the Trustee has no interest in such Property. This argument is meritless. The Debtors are correct that the Property did indeed vest in the Debtors upon confirmation of their plan — in Chapter 13. 11 U.S.C. § 1327(b). However, this is no longer a Chapter 13 case. Once a case is converted from Chapter 13 to Chapter 7, the provisions of Chapter 13 that define the effect of a plan's confirmation have no application in determining the composition of the Chapter 7 estate. Compare § 348 with § 1327.² It is elementary that, upon conversion, the provisions of the chapter to which the case is converted apply, while the provisions of the chapter from whence it came cease to be determinate, unless the Code provides otherwise. That is the whole concept of conversion. Moreover, reading § 1327 as determining the property of the estate after conversion to Chapter 7 would render § 348 entirely superfluous.

Another argument the Debtors seem to have made is that the Property the Trustee now seeks is no longer property of the estate because the payments made under the Chapter 13 plan somehow transformed it into property acquired after the date of petition. In other words, the Debtors argue that they should retain some present interest in the prior payments they made into the plan. There is no basis in either the Bankruptcy Code or the case law for such a proposition. Nonetheless, the Debtors cite several cases for support. For example, they cite In re Page, 250 B.R. 465 (Bankr.D.N.H.2000), which concluded that § 348 requires the valuations of property in the Chapter 13 case to apply in the case converted to Chapter 7 and held that any amount that real property appreciates after filing the Chapter 13 petition does not become property of the estate in the case converted to Chapter 7 because the amount of appreciation is in the nature of property acquired post-petition. Page 250 B.R. at 466. Page does not apply to this case since the Property here did not appreciate.

Besides, the Property here was not acquired post-petition, and the payments made under the Chapter 13 plan did not function to transform the Property into property acquired post-petition. After the funds generated by a debtor's Chapter 13 plan payments are distributed to creditors, the payments can be neither disgorged nor revoked retroactively. See In re Richardson, 20 B.R. 490, 492 (Bankr.W.D.N.Y. 1982); In re Bell, 248 B.R. 236, 239-40 (Bankr.W.D.N.Y.2000); In re O'Quinn, 143 B.R. 408, 413 (Bankr.S.D.Miss.1992); cf. In re Stamm, 222 F.3d 216, 216 (5th Cir.2000) (making clear that no Chapter 13 plan was confirmed in that case, so none of the money paid to the Trustee should have been distributed to creditors); In re Del Castillo, 273 B.R. 677, 678-79 (Bankr. M.D.Fla.2002) (basing its reasoning on the fact that no plan was confirmed and no payments had been distributed to creditors). Moreover, a confirmed plan is binding on...