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In re Plata

filed*fn*: March 10, 1992.

IN RE: JUAN O. PLATA; IN RE CATALINA PLATA, DEBTORS. PETER H. ARKISON, TRUSTEE, APPELLANT,
v.
JUAN O. PLATA; CATALINA PLATA, APPELLEES.



Appeal from the Ninth Circuit Bankruptcy Appellate Panel. No.WW-89-1590-RAsP Russell, Ashland, and Perris, Judges, Presiding.

Before: Eugene A. Wright, Melvin Brunetti and Edward Leavy, Circuit Judges. Opinion by Judge Leavy; Dissent by Judge Brunetti.

Author: Leavy

LEAVY, Circuit Judge:

This case presents the court with a question of first impression involving an interpretation of Chapter 12 of the Bankruptcy Code, viz., do funds acquired by the petitioners following confirmation of their reorganization plan and held by the Chapter 12 bankruptcy trustee for eventual distribution to creditors belong to the petitioners or to their creditors at the time the Chapter 12 case is converted to a Chapter 7 liquidation? We agree with the Bankruptcy Appellate Panel ("BAP") in its affirmance of the bankruptcy court and hold that such funds revest in the petitioners at the time of conversion.

FACTS AND PRIOR PROCEEDINGS

Juan and Catalina Plata ("Debtors") are family farmers who filed a petition in 1987 under Chapter 12 of the Bankruptcy Code.*fn1 Debtors submitted a plan, confirmed by the bankruptcy court early the following year, which provided that some $29,000 would be paid to the bankruptcy trustee for distribution to their creditors in 1988. Most of this money was to come from the proceeds of the sale of strawberries and raspberries grown on Debtors' farm. Unfortunately for all concerned, by harvest time it became apparent that Debtors' berry crop would not generate sufficient income to meet the payments required by the plan. Consequently, Debtors converted their case from Chapter 12 to Chapter 7.

At the time of conversion, approximately $14,000 of the money previously paid by Debtors to the Chapter 12 trustee remained undistributed. Following conversion, Debtors claimed $8,300 of those funds as exempt from their creditors under 11 U.S.C. § 522(d).*fn2 The Chapter 7 trustee opposed the exemption claim and moved for summary judgment, arguing that the creditors had effectively obtained a vested interest in the funds the moment Debtors paid the money over to the Chapter 12 trustee, and that vested interest could not be defeated by a conversion of the Chapter 12 case.

The bankruptcy court rejected the trustee's argument and allowed Debtors' exemption claim. The trustee then appealed to the BAP, which affirmed the bankruptcy court in an unpublished memorandum decision. The trustee has timely appealed to this court, advancing the same argument he asserted below. We have jurisdiction under 28 U.S.C. § 158(d) and examine de novo the BAP's review of the bankruptcy court's decision. See Wyle v. C.H. Rider & Family (In re United Energy Corp.), 944 F.2d 589, 593 (9th Cir. 1991).

Discussion

By filing a petition under Chapter 12 of the Bankruptcy Code, Debtors created an estate consisting not only of all existing legal and equitable interests in their property, see 11 U.S.C. §§ 301, 541(a),*fn3 but also of all property and earnings acquired "after the commencement of the case but before the case [was] closed, dismissed, or converted to . . . chapter 7 of this title, whichever occurred first". 11 U.S.C. § 1207(a)(1), (2). Debtors were entitled to, and did, remain in possession of their estate and continued to operate their family farming business. See 11 U.S.C. §§ 1203, 1207(b).*fn4 They also were required to, and did, present within 90 days of the filing of their petition a plan providing for the submission of their future earnings to the Chapter 12 trustee and the payment of their creditors' claims. See 11 U.S.C. §§ 1221, 1222(a)(1), (2).*fn5

Confirmation of the plan submitted had several immediate effects: it bound, inter alios, Debtors as well as their creditors, see 11 U.S.C. § 1227(a);*fn6 it obligated the trustee to distribute all payments to the creditors in accord with the plan's provisions, see 11 U.S.C. § 1226(a), (c);*fn7 and it vested in Debtors all rights in any postpetition-acquired property. See 11 U.S.C. §§ 1207(a), 1227(b).*fn8

As both parties to this appeal have conceded, there is no controlling statutory authority or case law mandating a result one way or the other, and the legislative history of Chapter 12 is equally devoid of any guidance on this point. It is for this reason that we turn our attention to similar cases analyzed under Chapter 13.*fn9

In the case of Nash v. Kester (In re Nash), 765 F.2d 1410 (9th Cir. 1985), we noted that any earnings acquired by the debtors after the commencement of their Chapter 13 bankruptcy case but prior to its dismissal or conversion to Chapter 7 constituted property of the bankruptcy estate. Id. at 1413-14 (quoting 11 U.S.C. § 1306(a)(2)). We proceeded to hold that these postpetition earnings automatically revested in the debtors immediately upon dismissal of their case, even though the funds were in the possession of the trustee and destined for eventual distribution to creditors. Id. at 1414 (citing, inter alia, 11 U.S.C. § 1327(b)).

Although In re Nash offers at least indirect support for the argument advanced here by Debtors, there is more than one line of authority for results favorable to either party to the instant appeal. For example, in the context of cases involving conversions from, rather than dismissals of, Chapter 13 to Chapter 7, some courts have held that pre confirmation-acquired property revests in the debtors. See, e.g., Arkison v. Swift (In re Swift), 81 Bankr. 621, 622 (Bankr. W.D. Wash. 1987). See also In re Mutchler, 95 Bankr. 748, 750 (Bankr. D. Mont. 1989) (same with respect to conversion from Chapter 12 to Chapter 7). On the other hand, some courts have held that post confirmation-acquired property should go to the creditors. See, e.g., Resendez v. Lindquist, 691 F.2d 397, ...


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