The Ninth Circuit Court of Appeals has agreed to hear an appeal whether the bankruptcy court erred in ruling that a Chapter 13 debtor, in calculating projected disposable income, is not permitted to deduct the amount of voluntary retirement plan contributions even where the debtor was making the contributions prepetition. The debtor’s appeal from adverse decisions below.
The Seventh Circuit Considers Whether a Chapter 13 Trustee May Take A Fee If the Case is Dismissed Pre-Confirmation
The Seventh Circuit, in the case of In re Johnson, Case No. 23-2212 (7th Cir. 2023), accepted a direct appeal from the Bankruptcy Court for the Northern District of Illinois. The bankruptcy court held that a chapter 13 trustee may not deduct her fee if a chapter 13 case is dismissed without having a plan confirmed. The court adopted the reasoning in Goodman v. Doll (In re Doll), 57 F.4th 1129 (10th Cir. 2023).
At present, two courts have affirmed that a trustee may not deduct a fee if the chapter 13 case is dismissed prior to confirmation. In addition to the Doll opinion, the Ninth Circuit agreed in Evans v. McCallister (In re Evans), 69 F.4th 1101 (9th Cir. 2023). The Doll decision is currently being considered for certiorari by the Supreme Court. Another case is pending on this issue in In re Soussis, Case No. 22-155 (2nd Cir. 2023).
NCBRC and NACBA filed an amicus brief in support of the Debtor/Appellee. NCBRC NACBA Filed Amicus Brief – In re Johnson
The 9th Circuit Considers Whether a Chapter 13 Debtor Has A Statutory Right to Dismiss
UPDATE: The Ninth Circuit has since decided this case. Click here to read our article discussing their ruling.
The Ninth Circuit is considering whether a chapter 13 debtor’s statutory right to dismiss his bankruptcy is precluded by bad faith or ineligibility under section 109(e). Judgment creditor TICO Construction Company, Inc. (“TICO”) objecte to the debtor’s motion to dismiss, arguing that Mr. Powell did not have an absolute right to dismiss his case because he was abusing the bankruptcy process and was not eligible to be a chapter 13 debtor. TICO argued that the bankruptcy court should instead convert the case to one under chapter 7. The bankruptcy court disagreed with TICO’s analysis and dismissed the case. The Ninth Circuit Bankruptcy Appellate Panel affirmed in TICO Constr. Co. v. Van Meter (In re Powell), 644 B.R. 181 (B.A.P. 9th Cir. 2022).
TICO appealed the BAP to the Ninth Circuit Court of Appeals.
TICO Construction, a judgment creditor in the debtor’s chapter 13 case, opposed the debtor’s motion to voluntarily dismiss his bankruptcy under section 1307(b). TICO alleged both that the debtor’s unsecured debts exceeded the debt limit set forth in section 109(e), and that the debtor abused by the bankruptcy process by transferring non-exempt assets to his ex-wife in “sham” divorce proceedings. TICO requested that, instead of granting the debtor’s motion to dismiss, the court should convert the case to chapter 7 or 11.
The bankruptcy court found that with one statutory exception that was inapplicable, the debtor had an absolute right to dismiss his case and granted the debtor’s motion. TICO appealed to the Bankruptcy Appellate Panel for the Ninth Circuit.
The panel began with section 1307(b), which provides: “On request of the debtor at any time, if the case has not been converted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under this chapter. Any waiver of the right to dismiss under this subsection is unenforceable.”
The question before the panel was whether the debtor’s right to dismiss his chapter 13 bankruptcy was circumscribed either by bad faith or by his ineligibility to be in chapter 13. In Jacobsen v. Moser (In re Jacobsen), 609 F.3d 647, 660 (5th Cir. 2010), the court held that a debtor’s bad faith precludes voluntary dismissal of his chapter 13 case. While the Ninth Circuit at one time agreed with that conclusion, it changed its view in Nichols v. Marana Stockyard & Livestock Market, Inc. (In re Nichols), 10 F.4th 956 (9th Cir. 2021), where it found the debtor’s right to dismiss was subject only to the exception included in the statute itself. The panel noted that Nichols was based on the decision in Law v. Siegel, 571 U.S. 415 (2014), where the Court held that the bankruptcy court could not override explicit mandates of the Code.
Because bad faith was not included in the statutory exceptions to the debtor’s right to dismiss, the panel found the bankruptcy court did not err in that finding.
TICO next argued that the debtor exceeded the debt limit for chapter 13 and therefore his case should have been treated as if it were chapter 7 with the court considering his motion to dismiss in terms of the best interests of creditors. The panel disagreed, finding that if it did as TICO requested it would create a new exception to the debtor’s right to dismiss under section 1307(b) and that would go directly against the holding in Law.
The panel noted that in FDIC v. Wenberg (In re Wenberg), 94 B.R. 631 (9th Cir. BAP 1988), aff’d, 902 F.2d 768 (9th Cir. 1990), it held that the debt limit in section 109(e) is not jurisdictional, and a bankruptcy court is not required to dismiss a chapter 13 case when the debtor is found ineligible under section 109(e), but may allow the debtor to convert to chapter 7. The court reasoned that if an ineligible chapter 13 debtor retains his right to convert, his right to dismiss also remains intact.
In response to TICO’s argument that the debtor should not be allowed to get away with his bad faith conduct, the panel pointed to other methods for addressing bad faith including denying the debtor’s right to refile, or to apply other sanctions under section 105(b).
No oral argument date has yet been set by the court.
The 9th Circuit Adopts NCBRC and NACBA’s Amici Argument Holding A Chapter 13 Trustee May Not Collect A Percentage Fee If A Chapter 13 Case Is Dismissed Before Confirmation
On June 12, 2023, the Ninth Circuit Court of Appeals held that 11 U.S.C. § 1326(b) requires a Chapter 13 trustee to turnover all plan payments to the Debtor upon dismissal before confirmation, without deducting her statutory fee. See Steedman v. McCallister (In re Evans), No. 22-35216, 2023 U.S. App. LEXIS 14571 (9th Cir. June 12, 2023).
The court agreed with the interpretation of the law submitted by the National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys.
“The better approach, as proposed by amicus National Consumer Bankruptcy Rights Center and National Association of Consumer Bankruptcy Attorneys (NCBRC), is to read 28 U.S.C. § 586 and 11 U.S.C. § 1326 together. … We generally agree with NCBRC’s construction of the relevant statutes, which renders harmonious an otherwise fragmented scheme.”
Joining the Tenth Circuit, the Ninth Circuit held that the trustee was not entitled to a percentage fee of plan payments as compensation for her work in the Chapter 13 case. 28 U.S.C. § 586(e)(2) provides that the trustee shall “collect” the percentage fee from “payments . . . under plans” that she receives. 11 U.S.C. § 1326(a)(1) provides for the debtor to make payments in the amount “proposed by the plan to the trustee.” Section 1326(a)(2) provides that the trustee shall retain these payments “until confirmation or denial of confirmation.” This section further provides that if a plan is not confirmed, the trustee shall return to the debtor any payments not previously paid to creditors and not yet due and owing to them. Section 1326(b) provides that, before or at the time of each payment to creditors under the plan, the trustee shall be paid the percentage fee under § 586(e)(2).
The court held that, reading these statutes together, “payments . . . under plans” in § 586 refers only to payments under confirmed plans. Before confirmation, a trustee does not “collect” or “collect and hold” fees under § 586, but instead “retains” payments “proposed by the plan” under § 1326(a)(2). If a plan is not confirmed, then § 1326(a)(2) requires a return to the debtor of payments “proposed by the plan.” If a plan is confirmed, then § 1326(b) provides for payment of the percentage fee to the trustee. Thus, under the plain meaning of the statutory text, a trustee is not paid her percentage fee if a plan is not confirmed. The court concluded that statutory canons of construction, such as the rule against superfluities, and the provisions’ amendment history confirmed its reading of the statutes. Policy arguments made by the trustee were not enough to overcome the plain language and context of the relevant statutory provisions.
The Second Circuit has this issue under consideration in Soussis v. Macco, Case No. 22-155 (2nd Circuit). Also, the 7th Circuit has been asked to take up this issue on a direct appeal from In re Johnson, Case No. 22-04449 (Bankr. N.D. IL, May 12, 2023).
The Fourth Circuit Examines Whether a Local Rule Can Mandate The Timing When Property Vests in Chapter 13 Cases
UPDATE: The Fourth Circuit has since decided this case. Click here to read our article discussing their ruling.
The Fourth Circuit is considering the issue whether a local bankruptcy rule can dictate the timing of vesting of estate property in chapter 13 cases. This is an appeal from the United States District Court in Trantham v. Tate, 647 B.R. 139 (W.D.N.C. 2022).
The Bankruptcy Court for the Western District of North Carolina mandates the use of a local form chapter 13 plan. This plan includes a provision that the property of the estate will not vest in the debtor until the final decree in the case. The Debtor filed a plan that strikes through this language and included a nonstandard provision that property vests in the debtor upon confirmation. The bankruptcy court sustained the trustee’s objection to this language and was affirmed by the district court.
The argument on appeal is that the determination of the date when property vests is controlled by the debtor pursuant to 11 U.S.C. § 1322(b)(9) which states “the plan may — provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity.” Since 1322(b) contains discretionary provisions for the debtor to choose from, a local rule that mandates the timing of vesting therefore modifies the debtor’s right to choose. This is in violation of 28 U.S. Code § 2075 which states in pertinent part that “[s]uch rules shall not abridge, enlarge, or modify any substantive right.”
The District Court held “The Bankruptcy Court has determined that all chapter 13 plans should include the standard provision that property of the estate vests in the estate until the final decree is entered. An attempt to include a nonstandard provision in a plan filed in the Western District of North Carolina, that contradicts this standard provision, is inappropriate, and a plan that includes such a contradicting nonstandard provision cannot be confirmed.” Trantham v. Tate, 647 B.R. 139, 145 (W.D.N.C. 2022).
NCBRC and NACBA submitted an amici curiae brief in support of the debtor. The brief was written and submitted by NACBA member Richard P. Cook of Richard P. Cook, PLLC in Wilmington, North Carolina. The Debtor/Appellant is represented by NACBA member Todd Mosley of the Mosley Law Firm, P.C. in Asheville, North Carolina.
The briefing, in this case, is complete and an order-setting oral argument is expected shortly.
The Fourth Circuit Considers Whether Restitution Ordered by a Maryland Court Upon is Non-Dischargeable
UPDATE: The Fourth Circuit has since issued a decision on this case. Click here to read our article discussing their ruling.
The Fourth Circuit is considering whether restitution included in a “probation before judgment” is non-dischargeable in Chapter 13 under 11 U.S.C. §1328 (a)(3). Section 1328(a)(3) provides that “the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt— … for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.” This is an appeal from the District Court in Feyijinmi v. Md. Cent. Collection Unit, Civil Action No. RDB-22-00904, 2022 U.S. Dist. LEXIS 198970 (D. Md. Nov. 1, 2022).
In 2006 the Debtor was found guilty of welfare fraud and sentenced to probation before judgment and ordered to pay restitution for $7,275.33. In 2014 the Debtor filed a Chapter 13 bankruptcy and received a discharge on February 26, 2020. Post-discharge the creditor notified the Debtor that she had an outstanding debt for the restitution and that they may intercept her tax refund.
The Debtor then filed a motion to reopen the bankruptcy and filed a complaint to determine whether the restitution was discharged. The bankruptcy court held that the debt was non-dischargeable and was affirmed by the district court. The court held
“The central fact is whether there is an implication of guilt. In Wilson, the court determined that probation before judgment following a guilty plea constituted a finding of guilt necessary to categorize the debtor’s restitution as attached to a criminal conviction. Here, the Appellant was found guilty, which squarely implies guilt sufficient to attach her restitution to a criminal conviction under 11 U.S.C. § 1328(a)(3). The appellant’s argument raises a distinction without a difference. Therefore, the Appellant’s probation before judgment following a finding of guilt constitutes a criminal conviction under 11 U.S.C. § 1328(a)(3) and her restitution was non-dischargeable.” Feyijinmi v. Md. Cent. Collection Unit, Civil Action No. RDB-22-00904, 2022 U.S. Dist. LEXIS 198970, at *9 (D. Md. Nov. 1, 2022).
NACBA submitted an amicus brief in this case supporting the Debtor. The brief was written and submitted by Peter Goldberger of Ardmore, Pennsylvania.
The briefing, in this case, is complete and an order-setting oral argument is expected shortly.
“Equity Abhors a Forfeiture”
Where the debtor had paid over 70% of the purchase price of real property, the court found that equitable principles precluded granting relief from stay to allow the seller to enforce a provision in the sales documents requiring the defaulting debtor to “forfeit not only the property, but all deposits, improvements and payments made.” Allied Ventures, LLC. v. Cruz, No. 22-23864 (Bankr. W.D. Tenn. Feb. 23, 2023).The debtor entered into an agreement with Allied, titled Seller-Financed Industrial Purchase Agreement, to purchase property Allied had bought at a tax sale. As the “Buyer,” the debtor was able to take possession of the property and was obligated to pay $290,000 in accordance with a schedule of payments beginning with a $30,000 initial payment and $6,500 monthly payments once Allied obtain title. Once the purchase price was satisfied, Allied would transfer title to the Buyer. Allied exercised control over the property only to the extent that the agreement required the Buyer to use it for a purpose that was legal and that the Buyer provide insurance as specified by Allied.
The debtor also signed a promissory note as “Buyer/Borrower” obligating him to pay the entire purchase price of $290,000. Both the Purchase Agreement and the Promissory Note provided that, in the event of default, “[i]f the scheduled amount of payment is not made in sixty (60) days after the invoice date, you will forfeit not only the property, but all deposits, improvements and payments made.”
The debtor missed a payment and Allied sought to enforce the default provision. It obtained a state court judgment for possession in June 2022, and for reasons that weren’t explained, accepted a payment from the debtor in July, 2022. The debtor posted an $86,000 bond and appealed the state court judgment.
The debtor filed for chapter 13 bankruptcy in September, 2022. In his 100% plan he proposed to treat the debt to Allied as a secured debt and pay the remaining balance through the plan.
The case came before the court on Allied’s motion for relief from stay to allow it to possess and sell the property with forfeiture by the debtor of all payments and improvements made. In its motion, Allied argued that the debtor’s plan incorrectly treated its claim as secured when in fact it was a lease agreement, and that the debtor had failed to propose a feasible plan.
In response, the debtor argued the Allied’s interest was protected by the $417,400 actual value of the property and the insurance he had obtained. His proposed plan included adequate protection payments of $1,800 per month. With respect to the nature of the agreement, the debtor took the position that if the court found it was not a secured loan but an executory contract, he would assume the lease, pay any arrearage through the plan and maintain monthly payments directly. The debtor further “propose[d] to use the $86,000.00 presently being held by the Shelby County Circuit Court Clerk to satisfy any such post-petition arrearage, and to otherwise be applied to the plan as may be determined by the Court.”
The court began its analysis with the nature of the underlying claim. It observed that the seller delivered possession of the property to the debtor and, with limited exceptions, the debtor undertook full responsibility for it. The promissory note created an absolute obligation on the debtor to pay $290,000, and title would transfer at the end of the payment period. The court found that “[a]lthough there is some ambiguity in the arrangement contemplated by the parties, the Court believes and finds for purposes of the pending Motion for Relief from Stay that the agreement between the parties is best characterized as an installment land sales contract.” It noted that, under Tennessee law, such contracts create a situation like a deed of trust where “the vendee is regarded as the owner, subject to liability for the unpaid price, and the vendor is regarded as holding only the legal title in trust for the vendee from the time a valid contract for the purchase of land is entered into.”
The court went on to determine whether the language of repossession and forfeiture in the agreement and the note justified granting Allied’s motion for relief from stay. For that analysis, the court looked to equitable principles. By the time the case came before the court, the debtor had paid 71-77% of the total purchase price. If Allied had its way, the debtor’s more than $200,000 in payments would be forfeit to Allied’s right to sell to another buyer.
This was unpalatable to the court. “Equity abhors a forfeiture.” The court observed that states often deny a vendor the right to sell against a defaulting buyer “when forfeiture would be unreasonable or inequitable.” The trend is to allow the buyer an opportunity to pay the remaining purchase price or the defaulted payments, in a redemption-type solution.
In light of the fact that the confirmation hearing was coming up, the court found no good reason to “short circuit that process.” It denied Allied’s motion for relief from stay.
Allied has appealed this decision to the Bankruptcy Appellate Panel for the Sixth Circuit, case no. 23-8009.
No Harm in Failure to Disclose
The debtor was entitled to reopen her bankruptcy case to disclose a post-confirmation, pre-discharge lawsuit where she successfully completed her 100% plan so there was no harm to creditors by her failure to timely disclose the lawsuit, and the debtor would benefit from the opportunity to comply with Eleventh Circuit disclosure requirements. In re Calixto, No. 17-18317 (Bankr. S.D. Fla. Jan. 31, 2023).
Approximately one year before the end of her chapter 13 plan, the debtor slipped and fell on property owned by Gulfstream Park Racing Association, Inc. One month after she successfully completed her plan and received her discharge, she sued Gulfstream in state court for negligence. Gulfstream moved for summary judgment arguing that the debtor was judicially estopped from pursuing the case because she failed to disclose the lawsuit to the bankruptcy court. The debtor moved to reopen her bankruptcy in order to disclose the claim.
The court began with sections 541 under which a lawsuit is property of a chapter 13 bankruptcy estate, and 1306(a)(1) which incorporates property acquired by the debtor post-confirmation into the bankruptcy estate. It noted that while the Code does not obligate debtors to make ongoing post-confirmation disclosures when they acquire new property, Eleventh Circuit precedent has established that debtors have a continuing duty to disclose a post-confirmation litigation claim.
Having found that the litigation was property of the estate and that the debtor had a duty to disclose it and failed to do so, the court went on to consider the equities of allowing her to reopen her bankruptcy to do so now. It weighed the benefits of reopening against prejudice to any of the parties.
While the court noted that it views nondisclosure with a jaundiced eye, in this case, the debtor’s schedules were accurate when she filed them and when her case was confirmed. Furthermore, all her creditors were paid the full amount of their claims so none were prejudiced by the debtor’s failure to disclose the lawsuit during her bankruptcy and none stood to benefit from the disclosure now. Nor was the trustee prejudiced by the failure to disclose because the debtor retained her right to personally pursue the litigation while her bankruptcy case was pending. Thus, “even if the Debtor had previously disclosed the litigation claim – or if the Court permits her to reopen her case now to disclose it – it would not have, and will not have, any effect on her bankruptcy estate or her creditors.”
On the other hand, by reopening, the debtor stood to benefit from the opportunity to satisfy the procedural technicality established by the Eleventh Circuit and pursue her rights against Gulfstream in state court.
The court found that requiring Gulfstream to address the merits of the debtor’s case in state court did not constitute prejudice.
The court granted the debtor’s motion to reopen.
Creditor Estopped from Objecting to Amended Plan
A mortgage creditor who accepted the debtor’s plan could not late object to confirmation of an amended plan that contained the same terms with respect to that creditor. In re Ritter, No. 22-40120 (Bankr. S.D. Ill. Feb. 2, 2023).
The debtor filed a chapter 13 petition listing his mortgagee’s claim at $116,819.95. The debtor proposed a plan to pay the claim at 0% interest and $0 monthly payments. Within minutes of filing that plan, he filed a second “original” plan proposing to make monthly payments to the mortgagee in the amount of $1,200.00 for 60 months, to pay $43,000.00 in arrearages, and to make a Limbo payment of $2,400.00. The creditor, Shellpoint Mortgage, filed an objection to the first original plan but withdrew it three days later stating that the second original plan provided sufficient treatment of its claim. Shellpoint then filed a proof of claim listing the outstanding principle as $119,308.66 and the arrearage as $35,247.86. It later added to its claim $2,125.00, in fees, expenses, and charges. Neither the debtor nor the trustee objected to Shellpoint’s claim.
The trustee objected to various aspects of the second original plan and, in response, the debtor filed a first amended plan, which mooted those objections. The amended plan also changed the payments to Shellpoint to a monthly payment of $763.72, the Limbo payment of $1,527.44, the pre-petition delinquency as $35,247.86, and the post-petition fees of $2,125.00. Shellpoint did not object to the amended plan, and the trustee objected only with respect to certain discrepancies which the debtor corrected in a second amended plan. Shellpoint objected to that plan raising for the first time the argument that the debtor could not cure arrearages because the property had been sold in a pre-petition foreclosure sale, though that sale had not yet been confirmed by the state court.
The debtor filed a third amended plan to correct certain issues raised by the trustee but did not change its treatment of the Shellpoint’s claim. Shellpoint reasserted its objections as to the third amended plan.
The court found Shellpoint’s objections were barred by the judicial estoppel and by certain provisions of the Bankruptcy Code.
As to judicial estoppel, the court found Shellpoint’s objections were inconsistent with its statement with respect to the second original plan that the plan “provides sufficient treatment as to Creditor.” At that time, Shellpoint’s asserted bases for its objection were not that the property had been sold, but were that the mortgage would not mature during the course of the plan and that the arrearage amount to be cured under the plan was $35,247.86. When the debtor amended his plan to conform to Shellpoint’s position, Shellpoint did not object or withdraw its claim.
In reliance on Shellpoint’s stated position, the court allowed Shellpoint to withdraw its objections and the trustee made monthly payments to Shellpoint totaling more than $10,000. The court found that if Shellpoint prevailed on its objections and were permitted to retain the payments as requested, it would give Shellpoint an unfair advantage over other creditors and harm the debtor.
The court also found sections 1325 and 1323 precluded the result Shellpoint sought. Section 1325(a)(5)(A) provides that the court shall confirm a plan if each secured creditor has accepted it. The court found Shellpoint’s withdrawal of its objection constituted such acceptance. Under section 1323, once it accepted the plan, Shellpoint could not later object to an amended plan containing the same terms.
The court overruled Shellpoint’s objections and confirmed the debtor’s plan.
Chapter 7 Trustee Bound by Pre-Conversion Agreement
The Chapter 7 trustee was bound by the Chapter 13 trustee’s pre-conversion concession that the creditor’s liens were valid. Therefore the Chapter 7 trustee could not prevent the creditor from receiving the proceeds from the sale of the property securing the liens. In re Hillis, No. 20-70372 (Bankr. M.D. Ga. Jan. 11, 2023).
When the debtors filed for Chapter 13 bankruptcy they listed Southern Pine Credit Union as a creditor with security interests in a lawn mower, two John Deere loaders, and a Nissan Armada. During the pendency of the bankruptcy, the debtors sought and received an order approving the sale of the lawn mower and the two loaders with the proceeds going to Southern Pine in satisfaction of the loans secured by all the vehicles including the Nissan Armada. The Trustee consented to the sale, and Southern Pine offered no opposition. The court approved the sale and ordered the creditor to release the lien on the Nissan Armada upon receipt of the proceeds.
The debtors completed the sale but converted to Chapter 7 before they had received the proceeds. Southern Pine moved for relief from stay because it had not yet received the proceeds from the sale. Soon after it filed the motion, the debtors transferred the proceeds to Southern Pine. The chapter 7 trustee, believing the underlying liens might be avoidable, objected to the motion for relief from stay and made a verbal demand at the meeting of creditors for turnover of the funds. Southern Pine responded that the trustee was barred by res judicata from reneging on the pre-conversion agreement. The debtors filed a turnover motion seeking an order requiring the creditor to release the lien on the Nissan as required by the court’s order approving the sale.
The court began by finding that the Chapter 7 trustee had standing in the case because, under section 348(f)(1)(A), the proceeds from the sale of the vehicles became part of the converted estate. Under that provision property in an estate converted from chapter 13 to chapter 7 consists of property the debtors held at the time of their chapter 13 petition which they continue to hold at the time of conversion. The court found that the sale agreement gave the debtor a contractual right to the proceeds which became property of the new estate.
The court agreed with Southern Pine, however, that the Chapter 7 trustee was barred by res judicata from challenging the pre-conversion agreement to transfer the proceeds to the creditor in satisfaction of its liens. The only issue in that regard was whether the Chapter 7 trustee was in privity with the Chapter 13 trustee such that the Chapter 7 trustee should be bound by an agreement entered into by his predecessor. The court found the elements for res judicata as outlined in Griswold v. County of Hillsborough, 598 F.3d 1289, 1292 (11th Cir. 2010), were satisfied. Specifically, where section 704(a)(5) empowers the Chapter 7 trustee to oppose the allowance of an improper claim, section 1302(b)(1) empowers the Chapter 13 trustee to exercise the powers granted in section 704(a)(5). The court observed that when the two trustees have corresponding duties, the performance of those duties by the first binds the second.
Here, the Chapter 13 trustee did not object to the debtor’s motion to sell the property, including the understanding in the motion that Southern Pine had valid liens. Nor was the motion contingent upon the debtors’ staying in chapter 13. The court also rejected the trustee’s argument that because section 348(f) permits him to reevaluate the property of the estate, he is entitled to challenge the validity of the liens. The court found the trustee’s reading of the statute to be too broad. Valuation of property does not include lien validity.
The court concluded that Southern Pine’s motion was moot by reason of its having received the proceeds from the sale. It ordered Southern Pine to release the lien as requested by the debtors and overruled the trustee’s objections.