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Bankruptcy Law/assets value in ch 11 to ch 7 post conversion

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QUESTION: My case was converted by court (no fraud) from ch 11 to 7. When we filled ch 11, we valued our primary residence at 1.1m but owed over 1.2 so no equity. 18 months later, a creditor requested ch 7 trustee to investigate the current house value. The trustee valued the house by his broker at 1.4m. Trustee had to kick the lien of the creditor out, then made an agreement with the debtors (us) to buy the house for $37k after using our homestead of 100k. The same creditor objected to the agreement. A hearing to resolve the objection was held 22 months after the conversion date and three years after the filling of ch 11. The real estate market has gone up . The creditor appraised the house at 1.63m. The court  will consider this appraisal coming July 11, 2013. Court also requested trustee to update his 22 months old appraisal. The
Trustee is not happy because he dislike the creditor for being unethical delaying the case and very aggressive but may have to comply. We feel that the court is unfair! Shouldn't the appreciation of the house value belong to the debtors who kept paying the expensive mortgage. We learned that code 348f support our position but it was written for ch 13 to 7 conversion. Would it apply to ch 11 conversion?

Leon Bayer
Leon Bayer  
ANSWER: Dear Wally,

I know these things are aggrivating and stressful for you.

The law is clear. The 9th Circuit Court of Appeals has consistantly ruled that appreciation of house value belongs to the bankruptcy estate. Even when the administration of a case drags on for years after the case was filed. Any special benefits granted to debtors who convert from Chapter 7 to Chapter 13 do not apply in a conversion from Chapter 11.

Although you have paid the mortgage, I assume that you have been living in the house. If so, what you have paid for the mortgage would probobly be viewed as your payment of rent for the occupancy of the property, as well as your own business decision to protect the value of your own homestead exemption.

The good news for you is that most courts give substantial weight to upholding the business decisions made by a bankruptcy trustee.

Assuming the trustee can support the reasonableness of the decision to sell you the house, I expect the court to rule in favor of the trustee. You can help the trustee by providing evidence. Look for ways to attack the creditor's appraisal. Are the creditor's comps relevant to your home? Are there unique factors affecting your home that would make your home worth less than the comps indicate? For instance, perhaps your home needs expensive repairs that the other appraisor has not taken into account? The cost of such repairs should be deducted from the base value.

The court might even determine that the value of the house is somewhere in between what the creditor says and what the trustee says. If so, be prepared to pay that difference if you want to keep the property.   

I certainly hope you have an attorney who is actively representing you in this matter.

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---------- FOLLOW-UP ----------

QUESTION: Mr. Bayer,

Thank you. The critical factor is in the conversion.
I agree with circuit court if this was a straight ch 7.
Isn't ch 13 and ch 11similar in this case?
Some online articles i read said that, although 348f
Explicitly was not mentioned in case of 11 but
It does apply in this case!
Appreciate the follow up.

Answer
In my view, Section 348f can not apply for many reasons.

The section itself is explicitly applicable only to Chapter 13. Congress did not give it any broader effect that I am aware of. Congress could have, but didn't.

I am not aware of any case law extending the applicability to any other kind of bankruptcy case, but I have not done the research. That would be for you and your lawyer to do. I don't think you would find any reported case, but that is up to you to look for them.

If someone else says 348f does apply, then ask them why they they say that.  

Secondly, Chapter 13 is unique from other cases due to the definition of property of the estate that governs all the other chapters. Particularly, Chapter 13 is the only case in which property that the debtor acquires after the commencement of the case normally becomes property of the estate.

In the other chapters, property of the estate normally consists of what the debtor owns on the date the case is commenced. For example, take earnings, (earned wages). Post petition earnings are not property of the estate in 7's and 11's. But post petition earnings are property of the estate in a 13. That is part of the logic behind 348f, because other chapters ordinarily do not include the aquisition of post petition property as property of the estate.

Thus, 348f exists only to put the converted 13 case on the same footing as cases commenced under the other chapters.


Even if 348f did apply to the conversion from 11 to 7, it still doesn't help you.

That is because, (I am assuming) the court has not made any prior ruling to determine the value of the property? 348f concerns rulings where the court has previously made a valuation ruling. Maybe there was a ruling if the trustee brought an action to avoid a lien? But such a ruling can't bind the angry creditor unless they were a party to the lien avoidance proceeding.

Even if the court had previously made a valuation ruling, such a ruling is limited to the purpose for which it was given. I don't see how it could control what is happining now.  

For example, think of shares of stock.

Are you really telling me that that shares of stock owned by a debtor worth $20,000 on the date of filing and properly exempted for that amount, can not be sold later by the trustee for $30,000 after the market has gone up?

It's the same thing with real estate. Your homestead does not exempt "the house." It only exempts a certain dollar amount of your equity in the house. The exemption does not stop the estate from enjoying the benefit of a post petition change in market value.

But, let's take your argument at face value. Suppose the market value of the house is now less than it was at the time you filed, and that a non exempt amount of equity which had existed is now wiped out and the property is now under water.

By your logic, you would owe the estate for the money it lost post petition when the value dropped. You can't be entitled to keep the gain without corresponding liability for the drop.

You would then have to agree that a trustee can sue you to recover the drop in market value. Of course, that isn't the law. But it would be, by extension of your logic to that kind of a situation.  

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Los Angeles Bankruptcy Lawyer Leon D. Bayer

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Leon Bayer is a bankruptcy attorney in Los Angeles, California. Leon has successfully represented clients in Los Angeles bankruptcy cases for over 30 years. He is frequently called upon by the media, the California Bar and other associations to provide insight and help educate attorneys on bankruptcy issues. Leon Bayer es un abogado de bancarrota en Los Angeles, California. León ha representado exitosamente a clientes en casos de bancarrota de Los Ángeles por más de 30 años. Él es llamado con frecuencia en los medios de comunicación, la barra de California y otras asociaciones para proporcionar información y ayudar a educar a los abogados en materia de quiebra. Leon's Los Angeles bankruptcy law firm is Bayer, Wishman & Leotta, founded in 1989 and has successfully represented individuals and commercial clients in bankruptcy proceedings for over 22 years. Leon Bayer and his partner, Jeff Wishman, are Certified Bankruptcy Specialists who bring experience, skill and creativity to the highly complex area of bankruptcy law. And not just a little experience. Between the two partners, they have over 60 years of experience as bankruptcy attorneys representing consumer debtors in Los Angeles, Long Beach, Woodland Hills, North Hollywood and the entire Los Angeles basin. As a long-standing expert, Leon is frequently called upon by the media, the California Bar and other associations to give opinions, provide insight and help educate new attorneys on bankruptcy and its changing laws. This blog is one more way that Leon Bayer and Jeff Wishman share their experience with the public and provide resources for individuals struggling with debt problems. You can learn more about Los Angeles Bankruptcy Attorney Leon D. Bayer at Hyperlink Code

Experience

Leon is a Certified Specialist in Bankruptcy Law by the State Bar of California, and has been a practicing bankruptcy lawyer in Los Angeles, California for 33 years. To learn more about Los Angeles Bankruptcy Attorney Leon D. Bayer, go to http://en.wikipedia.org/wiki/Leon_D._Bayer Leon Bayer es un abogado de bancarrota en Los Angeles, California. León ha representado exitosamente a clientes en casos de bancarrota de Los Ángeles por más de 30 años. Él es llamado con frecuencia en los medios de comunicación, la barra de California y otras asociaciones para proporcionar información y ayudar a educar a los abogados en materia de quiebra. Los Angeles bufete de abogados de bancarrota de León es Bayer, Wishman y Leotta, fundada en 1989 y ha representado con éxito a clientes individuales y comerciales en proceso de quiebra desde hace más de 22 años. Leon Bayer y su socio, Jeff Wishman, son Especialistas de Concursos certificados que aportan experiencia, la habilidad y la creatividad a la zona de alta complejidad de la ley de bancarrota. Between the two partners, they have over 60 years of experience as bankruptcy attorneys representing consumer debtors in Los Angeles, Long Beach, Woodland Hills, North Hollywood and the entire Los Angeles basin. Entre los dos socios, que tienen más de 60 años de experiencia como abogados de bancarrota de los deudores que representan a los consumidores en Los Angeles, Long Beach, Woodland Hills, North Hollywood y toda la cuenca de Los Angeles. Como experto de larga data, Leon se llama con frecuencia a los medios de comunicación, la barra de California y otras asociaciones para dar opiniones, proporcionar información y ayudar a educar a los nuevos abogados de la bancarrota y las leyes cambian. Este blog es una manera más que Leon Bayer y Jeff Wishman compartir sus experiencias con el público y proporcionar recursos para las personas que luchan con problemas de deuda.

Organizations
National Association of Consumer Bankruptcy Lawyers, California Bar Association, Los Angeles County Bar Association. Presidente, 1995-1996-Los Angeles Forum bancarrota; Miembro - Comité de la Asociación de Abogados del Condado de Los Angeles en la Ley de Bancarrota Comercial, 1988. Law Advisory
Opinión de la Comisión-Personal & Small Derecho Concursal del Colegio de Abogados del Estado de California, 1996-2000

MR. BAYER DICE: Los grandes bancos y de los companys de tarjetas de crédito han estado trabajando horas extras durante muchos años para vulnerar el derecho constitucional que del pueblo estadounidense para que pueda reclamar la protección de bancarrota. En 2005, el lobby bancario logró convencer al Congreso y al Presidente que hacen las leyes y proceedures más complicado, hopeing que va a obstaculizar las personas que sí que la declaración de quiebra. Tuvieron éxito en la obtención de estos nuevos y complejos proceedures legales por engrasar el sistema legislativo con cientos de millones de dólares en contribuciones de campaña "." La buena noticia para el pueblo estadounidense es que mientras que las nuevas leyes han hecho los proceedures innecesariamente complejas hasta el punto donde la gente sin experiencia no puede dejar de tropezar con el laberinto de las nuevas normas y reglamentos, el proceso es aún factible, especialmente con un abogado que está bien entrenado y con experiencia en esta especialidad.

Publications
Author, ?The Essentials Of Chapter 13,? Daily Journal Report, December 18, 1987.
Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993.
CEB Consultant, CEB-Personal and Small Business Bankruptcy Practice in California, 2003.
A free on line bankruptcy books for consumers at www.bestbankruptcybook.com

Education/Credentials
B.A., J.D.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory
Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

MR. BAYER SAYS: The big banks and credit card companys have been working overtime for many years to undermine the Consitutional right of the American people to be able to claim bankruptcy protection. In 2005 the banking lobby successfully convinced Congress and the President to make the laws and proceedures more complicated, hopeing that it will stymie legitimate people from filing bankruptcy. They succeeded in gaining these complex new legal proceedures by greasing the legislative system with hundreds of millions of dollars in "campaign contributions." The good news for the American people is that while the new laws have made the proceedures needlessly complex to the point where inexperienced people can't help but trip over the maze of new rules and regulations, the process is still doable, especially with a lawyer who is well trained and experienced in this specialty.

Past/Present Clients
I have probably handled something on the order of about 15,000 bankruptcy cases throughout my career. Probablemente he manejado algo del orden de alrededor de 15.000 casos de quiebra en toda mi carrera.

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