In re Reynard
| Decision Date | 27 June 2000 |
| Docket Number | No. 98-11946-RGM.,98-11946-RGM. |
| Citation | 250 BR 241 |
| Parties | In re Chris H. REYNARD and Bianca I. Reynard, Debtors. Montclair Property Owners Association, Inc., Plaintiff, v. Chris H. Reynard and, Bianca I. Reynard, Defendants. |
| Court | U.S. District Court — Virgin Islands, Bankruptcy Division |
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Mark S. Weiss, Woodbridge, Virginia, for debtor.
William M. Vermette, Vienna, Virginia, for plaintiff.
The question presented by this chapter 13 case is whether a homeowner's association is prohibited by the automatic stay imposed by § 362 of the United States Bankruptcy Code1 from collecting post-petition assessments after confirmation of the chapter 13 plan, and, if not, whether relief is necessary to garnish post-petition wages to satisfy a state court judgment for those assessments.
Chris H. Reynard and Bianca I. Reynard filed a voluntary petition in bankruptcy pursuant to chapter 13 of the Bankruptcy Code in this court on March 10, 1998. They owned their home. Pursuant to the Declaration of Covenants, Conditions and Restrictions encumbering their home, they were members of Montclair Property Owners Association, Inc. ("Montclair" or the "Association") and were obligated to pay monthly homeowner association fees. The debtors failed to pay Association fees from October, 1998 through September, 1999,2 in the total amount of $336.25 together with late charges3 of $75.00, for a total of $411.25. Montclair filed a motion for relief from the automatic stay imposed by § 362. The motion requested that the stay be modified to permit the Association to proceed against the debtors to the "full extent allowed by law" to collect post-petition assessments, late charges, interest, attorney's fees4 and costs of collection. As of the date of the hearing on the motion for relief from stay, the debtors were current in their payments to the chapter 13 trustee.
The automatic stay provided in § 362 of the Bankruptcy Code prohibits a variety of collection activities. One is the commencement or continuation of an action against the debtor that was or could have been commenced before the commencement of the bankruptcy case to recover a claim against the debtor that arose before the commencement of the bankruptcy case. § 362(a)(1). This does not prevent the commencement of a lawsuit to collect a post-petition debt. In re Henline, 242 B.R. 459, 467 (Bankr.D.Minn., 1999); Hudson v. United States (In re Hudson), 168 B.R. 448, 449 (Bankr. S.D.Ga., 1994). Homeowner association fees assessed after the filing of a voluntary petition in bankruptcy are post-petition debts, not pre-petition debts. River Place East Housing Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833, 837 (4th Cir., 1994), cert. denied, 513 U.S. 874, 115 S.Ct. 200, 130 L.Ed.2d 131 (1994), reh'g denied, 513 U.S. 1035, 115 S.Ct. 622, 130 L.Ed.2d 530 (1994).5 Montclair does not need relief from the automatic stay to demand payment of post-petition Association fees for which the debtors are liable or to file suit to collect those fees. Id. at 836-37; In re Shuman, 122 B.R. 317, 318 (Bankr. S.D.Ohio, 1990).
The right to undertake collection activity, including filing a lawsuit, to collect a post-petition debt does not allow all collection activities. The automatic stay prevents any act to create, perfect, or enforce any lien against property of the estate, and any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate. §§ 362(a)(4) and (a)(3), respectively. Consequently, a post-petition creditor who has the right to initiate a suit against a debtor and obtain a judgment for a post-petition debt without violating the automatic stay may not have recourse to execute on all assets that would have been, but for the filing of a chapter 13 petition, property of the debtor. Recourse is limited to property that is not property of the estate. Hudson, supra, at 449; Shuman, supra, at 318; In re Woodall, 81 B.R. 17, 18 (Bankr.E.D.Ark., 1987).
Courts have taken different approaches with respect to the extent of the estate after confirmation of a chapter 13 plan and, indeed, whether there is an estate after confirmation. The question is particularly relevant with respect to post-confirmation earnings. See United States Postal Service v. Black (In re Heath), 198 B.R. 298, 303-04 (S.D.Ind., 1996) (); Taylor v. Mississippi Learning Inst. (In re Taylor), 151 B.R. 772, 775 (Bankr.N.D.Miss., 1993) (); In re Petruccelli, 113 B.R. 5, 15 (Bankr.S.D.Cal., 1990) ().
The difference of opinion arises from the definition of property of a chapter 13 estate, § 541 as modified by § 1306(a), and the effect of confirmation of a chapter 13 plan, § 1327(b). Section 541 establishes the extent of a bankruptcy estate. It is measured, with some exceptions, as of the filing of the petition. This is the point of cleavage. In a chapter 7 case, debts as of that date are, unless otherwise provided, discharged. In return, the debtor surrenders to the trustee all of his non-exempt property as of the same date. In a liquidation proceeding under chapter 7, this works well; however, chapter 13 is intended as a financial reorganization. In order to have assets available to fund the reorganization, a modification to § 541 is necessary. Section 1306 accomplishes this. It provides:
While this seems fairly straight forward, its impact is clouded by § 1327(b). Section 1327(b) states:
Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.
On the one hand, § 1306(a) seems to include in the chapter 13 estate all property acquired by a debtor after confirmation, including future earnings. On the other hand, § 1327(b) seems to revest all property of the estate in the debtor, resulting in an estate without assets. The resolution of these competing provisions is not academic. If there is no post-confirmation chapter 13 estate, § 542 would have no effect in a chapter 13 case. Section 542 requires the turnover to the trustee of property of the estate. A trustee would not be able to use, sell or lease property under § 363. Section 363 is limited to property of the estate. Sections 362(a)(2), (3) and (4) would have no effect because there would be no property of the estate. If there is an estate and post-confirmation earnings are protected by the automatic stay, post-petition creditors may be prejudiced; if there is no estate or post-confirmation earnings are not protected by the automatic stay, pre-petition creditors may be prejudiced. Henline, supra, at 467; In re Ziegler, 136 B.R. 497, 502 (Bankr. N.D.Ill., 1992).
In re Leavell, 190 B.R. 536 (Bankr.E.D.Va., 1995) contains an excellent discussion of the question of whether any estate survives confirmation of the chapter 13 plan. It seeks to harmonize the two statutory sections and concludes that an estate does continue. The Bankruptcy Code must be read as a whole. Food and Drug Administration v. Brown & Williamson Tobacco Corp., ___ U.S. ___, 120 S.Ct. 1291, 1301, 146 L.Ed.2d 121 (2000); United Hospital Center, Inc. v. Richardson, 757 F.2d 1445, 1451 (4th Cir., 1985). When two provisions may conflict, a construction that renders one superfluous or insignificant should be avoided. Kawaauhau v. Geiger, 523 U.S. 57, 62, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998). Leavell points to several sections of the Bankruptcy Code that would be rendered meaningless if the expansive construction of § 1327(b) were adopted. Id. at 539. For example, the chapter 13 trustee's duties are, in part, established by reference to a chapter 7 trustee's duties. Section 1302(b)(1) requires that the chapter 13 trustee perform the same duties as a chapter 7 trustee set out in §§ 704(2), (3), (4), (5), (6), (7) and (9). In particular, § 704(9) requires that the chapter 13 trustee "make a final report and file a final account of the administration of the estate." If § 1327(b) were given literal effect and the estate terminated upon confirmation, there would be nothing for the trustee to collect or disburse. There would be no need for a final report or a final account.
Leavell notes that both § 1306(b) and § 1327(b) refer to confirmation and that § 1306(a) extends until the case is closed, dismissed or converted—a period which includes the post-confirmation period. Id. at 539-40. The court states:
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