Opinion
Case No. 03-01216.
June 15, 2009
MEMORANDUM DECISION RE DEBTOR'S AMENDED MOTION TO REOPEN BANKRUPTCY CASE
The debtor, Annette L. Henneghan, seeks to reopen this case, "in order to permit the Chapter 13 Trustee to administer a previously-unscheduled lender liability claim on behalf of her bankruptcy estate and to list a previously-unscheduled single largest creditor of the Debtor." Although I will not reopen the case for those purposes, I will reopen the case to permit the filing of a motion for annulment of the automatic stay of 11 U.S.C. § 362(a)(3) with respect to the debtor's pursuit of that claim via a civil action at a time that the claim was property of the estate.
I
On June 23, 2003, Henneghan commenced this case as a case under chapter 13 of the Bankruptcy Code (11 U.S.C.). Henneghan's Second Amended Chapter 13 Plan was confirmed by an order entered on December 17, 2003. Henneghan concedes that the lender liability claim was in existence when her case commenced and thus that it was an asset of the estate under 11 U.S.C. § 541 prior to the entry of the order confirming her plan.
Under 11 U.S.C. § 1327(b):
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.
The order of confirmation provided that "notwithstanding 11 USC § 1327(b), until the plan has been completed and the court has entered a discharge order, confirmation of the plan shall not vest the property of the estate in the debtor(s). . . ." In other words, the confirmed plan did not completely set aside vesting pursuant to § 1327(b) but only delayed that vesting until (1) the debtor completed plan payments and (2) the court, as a consequence, entered a discharge order pursuant to 11 U.S.C. § 1328(a).
Henneghan completed all of the payments required by her plan, and on August 19, 2004, the court entered an Order Discharging Debtor after Completion of Chapter 13 Plan. Accordingly, pursuant to the vesting rule of § 1327(b), as permissibly modified by the confirmation order, all of the property of the estate in existence at the time of confirmation vested in Henneghan upon the entry of the discharge order.
Section 1327(b) does not distinguish between property of the estate that was scheduled versus estate property that was not scheduled. Unless the plan or the confirmation order provides otherwise, the property of the estate vesting in a debtor pursuant to § 1327(b) includes unscheduled property. Accordingly, the property of the estate that vested in Henneghan upon the entry of the discharge order included the unscheduled lender liability claim.
II
For reasons discussed below, the property of the estate that vested in Henneghan upon entry of her discharge ceased to be property of the estate. This case does not present the issue of whether the lender liability claim remained property of the estate prior to the completion of plan payments; unquestionably it remained property of the estate prior to the entry of the discharge order. Nevertheless, the several different approaches courts have followed in addressing when property of the estate vests in the debtor and ceases to be property of the estate are instructive regarding whether the property of the estate in this case ceased to be property of the estate upon the vesting of the property in Henneghan upon entry of the discharge order.
In this district, this vexing issue is largely moot because, since several years ago, the court's usual chapter 13 confirmation order routinely postpones vesting under § 1327(b) until the entry of the discharge order. That is done in part to assure that there is certainty as to what remains property of the estate. The debtor thereby gains greater protection from the automatic stay than otherwise, although it does impose on the debtor an obligation to seek court authority under 11 U.S.C. § 363 to sell (or to refinance the secured debt on) property of the estate.
Courts have adhered to four different approaches. Some courts have held that when the plan or confirmation order does not provide otherwise, property of the estate retained by the debtor (as opposed to property paid to the trustee) ceases upon confirmation to be property of the estate by reason of § 1327(b). See In re Petruccelli, 113 B.R. 5, 17 (Bankr. S.D. Cal. 1990); accord, Oliver v. Toth (In re Toth), 193 B.R. 992, 996-97 (Bankr. N.D. Ga. 1996).
Other courts have held that by reason of 11 U.S.C. § 1306(a), property of the estate acquired by a debtor postconfirmation does not vest in the debtor under § 1327(b). See Waldron v. Brown (In re Waldron), 536 F.3d 1239, 1242-43 (11th Cir. 2008); Barbosa v. Soloman (In re Barbosa), 235 F.3d 31, 36-37 (1st Cir. 2000).
The courts adopting this approach have not explained how property acquired postconfirmation would vest in the debtor upon the debtor's obtaining a discharge and the case being closed. Section 1327(b) would not effect such a vesting (as this approach holds that § 1327(b) applies only to property acquired before confirmation). Moreover, closing of a case is not a dismissal of the case such as to trigger revesting under § 349(b)(3). Finally, upon closing, the property would usually not vest in the debtor under § 554(b) (providing for abandonment of scheduled property still held by the estate) as a debtor usually files her schedules relatively promptly and would not schedule property acquired postconfirmation. See Fed.R.Bankr.P. 1007(b)(1)(A) and (c).
Theoretically, however, a debtor could file amended schedules reflecting property acquired postconfirmation so that § 554(b) would abandon the property to the debtor upon closing of the case. That would appear to be permissible as Official Bankruptcy Form 6 does not distinguish between postconfirmation property of the estate versus other property of the estate, but it would be a hassle.
If In re Waldron and In re Barbosa were correctly decided, the best approach would appear to be for the confirmation order to recite that the property of the estate ceases to be property of the estate upon entry of the discharge order and closing of the case, an approach that appears to be authorized by § 554(d). Even in this case, which provided for vesting upon entry of the discharge order, such a provision might have been advisable in order to cover property acquired after entry of the discharge order and prior to closing of the case that § 1306(a) makes property of the estate.
An alternative view of § 1327(b) is that property of the estate, whether acquired before or after confirmation, does not vest in the debtor and remains property of the estate despite § 1327(b) to the extent it is necessary for the execution of the chapter 13 plan. See Telfair v. First Union Mortgage Corp. (In re Telfair), 216 F.3d 1333, 1340 (11th Cir. 2000); Black v. U.S. Postal Service (In re Heath), 115 F.3d 521, 524 (7th Cir. 1997).
Finally, there is a view that although the property of the estate vests in the debtor, it does not cease to be property of the estate until the case is dismissed, closed, or converted. See, e.g., Riddle v. Aneiro (In re Aneiro), 72 B.R. 424, 428-29 (Bankr. S.D. Cal. 1987).
Under the first three approaches, the lender liability claim vested in Henneghan under § 1327(b) upon entry of the discharge order. The property was property in existence at the time of confirmation, and by the time of entry of the discharge order it obviously was not property necessary for the completion of the plan.
Under the final approach, the approach of In re Aneiro, the property vested in Henneghan pursuant to § 1327(b) upon the closing of the case shortly after entry of the discharge order. Unlike the other decisions, which explicitly or implicitly recognize that property vesting in the debtor ceases to be property of the estate, In re Aneiro holds to the contrary.
This court has twice rejected the holding of In re Aneiro that property vesting in the debtor under § 1327(b) remains property of the estate. See Wilson v. Home-Savers, LLC (In re Wilson), 2006 WL 2348539, at *3 (Bankr. D.D.C. July 17, 2006); In re Walker, 84 B.R. 888 (Bankr. D.D.C. 1988). Other decisions have similarly rejected the holding of In re Aneiro. See, e.g., In re Van Stelle, 354 B.R. 157, 164-173 (Bankr. W.D. Mich. 2006); City of Chicago v. Fisher (In re Fisher), 203 B.R. 958, 962 (N.D. Ill. 1997); In re Toth, 193 B.R. 992, 996-97 (Bankr. N.D. 1996); In re Petruccelli, 113 B.R. at 11, 16. See also Yoon v. Krick (In re Krick), 373 B.R. 593, 600-601 (Bankr. N.D. Ind. 2007). Once again, I conclude that property vesting in a debtor under § 1327(b) ceases to be property of the estate, and I reject the contrary holding of In re Aneiro and the similarly contrary holdings or dicta of Woodard v. Taco Bueno Restaurants, Inc., 2006 WL 3542693, at *9-11 (N.D. Tex. Dec. 8, 2006); In re Brensing, 337 B.R. 376, 383 (Bankr. D. Kan. 2006); In re Fisher, 198 B.R. 721, 727-34 (Bankr. N.D. Ill. 1996), rev'd sub nom. City of Chicago v. Fisher (In re Fisher), 203 B.R. 958, 962 (N.D. Ill. 1997); In re Laye, 1994 WL 905759, at *3-4 (Bankr. N.D. Ill. Aug. 3, 1994); and In re Clark, 71 B.R. 747, 749-50 (Bankr. E.D. Pa. 1987).
One court of appeals decision has expressed agreement with In re Aneiro. See Security Bank of Marshalltown, Iowa v. Neiman, 1 F.3d 687, 690-91 (8th Cir. 1993). But as explained in In re Wilson, 2006 WL 2348539, at * 3, Neiman acknowledged that the issue before it did not include "what the estate included and what was protected by the stay," Neiman, 1 F.3d at 690, and its expressed agreement with In re Aneiro was thus unnecessary dicta.
Accordingly, when the unscheduled lender liability claim vested in Henneghan upon the entry of the discharge order on August 19, 2004, it became her property.
III
Henneghan commenced a civil action pursuing the lender liability claim prior to the entry of the discharge order. But under 11 U.S.C. § 1306(b), the debtor was authorized during the pendency of the bankruptcy case to remain in possession of the lender liability claim, and under 11 U.S.C. §§ 363 and 1303 she was authorized to "use" that property in accordance with 11 U.S.C. § 363(b). Those provisions, when invoked in the manner authorized by § 363(b), plainly permit a chapter 13 debtor to pursue a cause of action that is property of the estate. Dawson v. Thomas (In re Dawson), 2008 WL 1700419, at *10-17 (Bankr. D.D.C. Apr. 9, 2008). To the extent that the debtor was not engaged in a business within the meaning of 11 U.S.C. § 1304 when she sued, the pursuit of the civil action as a "use" not in the ordinary course of business would have required court authorization if § 363(b) is the basis upon which pursing the cause of action is an authorized use. 11 U.S.C. § 363(b); In re Thomas, 2008 WL 1700419, at * 13 n. 22. As an exercise of control over property of the estate, the pursuit of the civil action may have violated 11 U.S.C. § 362(a)(3). Under prior decisions of this court, an act in violation of the automatic stay of § 362(a) is void unless and until the stay is annulled pursuant to 11 U.S.C. § 362(d) to eliminate any violation.
Under § 1303, possession arguably may have been a basis for pursing the civil action. See Bogdanov v. Laflamme (In re Laflamme), 397 B.R. 194, 205 (Bankr. D.N.H. 2008).
Accordingly, I will reopen the case for the limited purpose of permitting Henneghan to pursue a motion to annul the automatic stay. Such a motion must be filed within 28 days after the entry of this order, and Henneghan must serve the Chapter 13 Trustee and the defendants in the referenced action in the Superior Court of the District of Columbia, Henneghan v. Countrywide Home Loans, Inc., No. 04-4264.
IV
The other reason that Henneghan advances for reopening the case is to permit her to amend her plan to use the fruits of the lender liability claim to pay creditors (including an unscheduled creditor). This appears to be an attempt to defeat any possible defense the defendants might raise of judicial estoppel.
It is too late to modify Henneghan's confirmed plan to the extent that the existence of the lender liability claim, had it been disclosed, would have required different plan terms. 11 U.S.C. § 1329(a). It is not clear, moreover, that the lender liability claim's existence would have given creditors any right to a more generous plan as the confirmed plan provided for payment to unsecured creditors of the allowed amount of their claims plus 6% per annnum postconfirmation interest.
The claim of the unscheduled creditor, by reason of not being scheduled, was not provided for by the plan and thus was not discharged. 11 U.S.C. § 1328(a). That creditor does not need to have the case reopened. Moreover, even though it was unscheduled, the creditor would be barred by Fed.R.Bankr.P. 3006(c) from filing a proof of claim. The debtor obviously cannot demonstrate cause under Fed.R.Bankr.P. 3004 and 9006 for an enlargement of the time to file a proof of claim on behalf of an unscheduled creditor of which she was well aware (having made payments to the creditor), and whose claim was not discharged.
In any event, the maximum of a five-year period pursuant to 11 U.S.C. § 1322(d) within which to complete plan payments would bar the debtor's belated attempt to make plan payments to the trustee to pay the claim of the unscheduled creditor.
V
In light of the foregoing, an order follows denying reopening for the purposes of which reopening was sought by the debtor's motion but reopening the case for the limited purpose of pursuing, within 28 days, a motion to annul the automatic stay, if it applied, with respect to the commencement and pursuit of the civil action, with the motion to be served on the trustee and the defendants in the civil action.
The document below is hereby signed.