BANKRUPTCY BULLETIN
Contributing Editor: Patrick Patino, Patino King LLC
In Goetz v. Weber (In re Goetz), 651 B.R. 292 (B.A.P. 8th Cir. 2023), the United States Bankruptcy Appellate Panel for the Eighth Circuit (“BAP”) affirmed the bankruptcy court’s ruling, stating that the post-petition, pre-conversion equity increase of the property belonged to the bankruptcy estate and not to the debtor.
Machele L. Goetz (the “Debtor”) had filed for bankruptcy relief under Chapter 13 of the Bankruptcy Code, valuing her residence at $130,000.00 and claiming a $15,000.00 homestead exemption. Freedom Mortgage held a mortgage lien of $107,460.54 against the residence. The bankruptcy court confirmed the Debtor’s Chapter 13 plan, and later, the Debtor’s case was converted to a Chapter 7. Pursuant to the confirmation order and 11 U.S.C. § 1327(b) of the Bankruptcy Code, property of the estate vested in the Debtor on confirmation. At the time of conversion, the value of Goetz’s residence had increased to $205,000.00, and the mortgage lien had decreased to approximately $106,500.00.
After conversion, the Debtor filed a motion to compel the trustee to abandon the residence, but the bankruptcy court denied the motion. The BAP determined that the increase in equity between the petition date and the conversion date is property of the Chapter 7 bankruptcy estate, and Goetz’s residence had more than “inconsequential value and benefit to the estate” under 11 U.S.C. § 554.
On appeal, Goetz raised two primary arguments. First, she claimed that the bankruptcy court erred in considering the post-petition, pre-conversion market appreciation and equity increase resulting from mortgage payments as property of the estate. Second, she argued that her residence was removed from the bankruptcy estate upon confirmation of her Chapter 13 plan or when she exempted it, and any equity accruing after these events belonged to her.
The BAP reviewed the bankruptcy court’s decision for clear error in the factual findings and reviewed the conclusions of law de novo. The BAP concluded that the bankruptcy court correctly determined that the post-petition, pre-conversion increase in equity that resulted from market appreciation and mortgage payments belonged to the bankruptcy estate.
The BAP examined the relevant sections of the Bankruptcy Code, particularly 11 U.S.C. § 541, which defines property of the estate, and 11 U.S.C. § 348, which addresses property of the estate in a converted case. The BAP noted that different courts had different interpretations on whether post-petition increases in equity should benefit the debtor or the estate.
Ultimately, the BAP agreed with the bankruptcy court’s reasoning that post-petition, pre-conversion equity increases are property of the estate. The BAP rejected the Debtor’s argument that the legislative history supported a different outcome, stating that there was no ambiguity in the applicable sections of the Bankruptcy Code. Even if there were ambiguity, the BAP found that the legislative history did not mandate a different interpretation.
Therefore, the BAP affirmed the bankruptcy court’s order denying the Debtor’s motion to compel the trustee to abandon the property. The BAP concluded that the increase in equity belonged to the bankruptcy estate and not to the Debtor.
To read the BAP’s full decision, click here.
Editors-in-Chief:
C.J. Harayda, Stinson LLP
David M. Tanabe, Winthrop & Weinstine, P.A.