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In re Black

United States Bankruptcy Appellate Panel of the Ninth Circuit

December 31, 2019

In re: RICHARD L. BLACK, Debtor.
v.
KATHLEEN A. LEAVITT, Chapter 13 Trustee, Appellee. RICHARD L. BLACK, Appellant,

          Argued and Submitted on November 21, 2019 at Las Vegas, Nevada

          Appeal from the United States Bankruptcy Court for the District of Nevada Honorable August Burdette Landis, Bankruptcy Judge, Presiding

          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.

          OPINION

          FARIS, BANKRUPTCY JUDGE:

         INTRODUCTION

         Debtor Richard L. Black obtained confirmation of a chapter 13[1] 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 ...


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