§ 53.12 — Avoidance and Recovery Powers
Revised: June 10, 2004
There is general agreement that the Chapter 13 trustee has standing to avoid transfers and recover property under §§ 544 (strong-arm power), 547 (preferences), 548 (fraudulent conveyance) and 549 (postpetition transfers).1 The same cannot be said for the Chapter 13 debtor—except to protect an exemption under § 522(h), the debtor has generally been refused avoidance and recovery powers.2
Chapter 13 trustees rarely seek to avoid transfers or to recover property.3 There is little incentive for the trustee to pursue such actions. The Chapter 13 trustee is not authorized by the Code to use, sell or lease property of the estate once recovered.4 Except as provided in a confirmed plan, the trustee cannot possess property of the estate once recovered.5 The debtor must propose to distribute to claim holders at least what would be paid in a hypothetical liquidation under Chapter 7—including any hypothetical recoveries by the trustee in a Chapter 7 case.6 If there are avoidable transfers, most Chapter 13 debtors propose to distribute the value of any hypothetical recovery through the plan without actually recovering the property that was transferred. This relieves the trustee of the obligation to pursue the avoidance action and protects the rights of unsecured claim holders, without challenging the transferee’s quiet enjoyment of whatever was transferred by the debtor.7
If a prepetition transfer is recoverable or avoidable by the trustee but that transfer would then be available to the debtor as an exemption under § 522(g),8 the trustee is unlikely to recover or avoid the transfer; rather, avoidance or recovery will be left to the debtor under § 522(h).9 If the debtor cannot exempt the property transferred, and if the debtor is financially unable to pay creditors the value of an avoidable transfer without reducing the amount to which creditors would already be entitled by the disposable income test,10 then the trustee may have to pursue the avoidance action for the benefit of creditors. When the debtor cannot or will not bring an avoidance action that would benefit creditors, the trustee has an obligation to bring the action to increase distributions to creditors.11 When avoidance of a transfer would benefit one creditor at the expense of others but would not benefit the debtor or the estate, it was held that the Chapter 13 trustee lacked standing to pursue avoidance even though the trustee had statutory authority to do so.12
The Chapter 13 trustee may have a duty to exercise avoidance powers to increase the payments that must be made to satisfy the disposable income test in § 1325(b).13 For example, in McRoberts v. Transouth Financial (In re Bell),14 the debtor’s car was subject to an unperfected security interest. As between the debtor and the car lender, the lien was unavoidable. To keep the car, the debtor’s plan proposed full payment of the lender’s secured claim. Payments to the car lender reduced the projected disposable income available for unsecured creditors.
However, the unperfected security interest of the car lender was avoidable by the Chapter 13 trustee under § 544. Once the lien was avoided, the car lender became an unsecured creditor and the payments proposed on account of its “secured” claim were available for pro rata distribution to all unsecured claim holders. The bankruptcy court applauded this use of a Chapter 13 trustee’s avoidance powers because “avoidance would increase the amount of disposable income to be allocated among unsecured creditors.”15
As discussed above,16 the U.S. Court of Appeals for the Fifth Circuit has held that the Chapter 13 trustee has standing to avoid liens under § 522(f).17 Because the predicate for lien avoidance under § 522(f) is a lien that impairs an exemption, it is not obvious why the trustee would exercise the avoidance power in § 522(f). The outcome of any such action by a Chapter 13 trustee would be to avoid a lien on property that would then be exempt to the debtor. Chapter 13 trustees might on occasion want to use their resources to help Chapter 13 debtors fully realize their exemptions. On the other hand, as discussed below, the expenses of any § 522(f) avoidance action by the trustee are at best difficult to recover and at worst borne by the general expense fund in the district—in other words, all of the cases in the district contribute to the cost of generating an exemption for one Chapter 13 debtor. As a general rule, Chapter 13 trustees should not undertake avoidance litigation that will only create an exemption for the debtor, notwithstanding that the trustee may have standing to do so. One exception to the general rule would be avoidance litigation that eliminates a lien and increases the projected disposable income available for distribution to all unsecured creditors.18
The recovery of litigation expenses is not carefully managed by the Code when a Chapter 13 trustee seeks to avoid transfers or recover property, either on behalf of the estate or for the benefit of the debtor. The general section of the Code dealing with expenses of a trustee, 11 U.S.C. § 330, cross-references 11 U.S.C. § 326.19 Section 326(b) prohibits a bankruptcy court from allowing compensation or reimbursement of expenses of a standing Chapter 13 trustee appointed by the U.S. trustee under 28 U.S.C. § 586(b).20 Thus, the usual power of the bankruptcy court to award trustee compensation and reimbursement of expenses under § 330 is not available when the U.S. trustee has appointed a standing Chapter 13 trustee.
A standing Chapter 13 trustee appointed by the U.S. trustee receives compensation and reimbursement of expenses only through 28 U.S.C. § 586(e).21 Expenses are reimbursed as a percentage deduction from all payments “received by” the trustee in cases under the trustee’s supervision.22 This mechanism can have strange results when the Chapter 13 trustee seeks to recover or avoid a prepetition transfer.
Imagine that a standing Chapter 13 trustee hires counsel, pursues a prepetition preference and recovers $10,000 for the estate. Assume further that the trustee incurred expenses of $500 (travel, copying) and that the trustee’s attorney is owed $3,000 for fees. If the $10,000 is a “payment received by” the trustee, and if the standard percentage for compensation and reimbursement of expenses is 10 percent in the district,23 then the trustee will be required to deduct $1,000 from the $10,000 recovery—$500 more than the actual expenses incurred by the trustee. The additional $500 might be characterized as trustee compensation, but after fixing by the Attorney General,24 the standing trustee’s compensation is payable from the general expense fund of the district and cannot be exceeded by additions to the fund from the proceeds of an avoidance action. Notice also that if the recovery had been less than $5,000, the 10 percent standard deduction would fail to even reimburse the trustee for the actual expenses of the litigation. Put another way, the percentage fee calculation under 28 U.S.C. § 586(e) includes no measure of the actual expenses of administering (or litigating) a particular Chapter 13 case.
And what about the trustee’s attorneys’ fees in the example? The percentage deduction for the standing trustee will rarely be sufficient to also pay attorney fees for an avoidance or recovery action. The cross-reference to § 326 in § 330 seems to prohibit separate allowance of an administrative expense for an attorney representing a standing trustee. Can the attorney’s fee be paid out of a standing trustee’s general expense fund even though not allowable under § 326(b) and, arguably, of benefit only to creditors in a single case? Can the recovery in the preference case be surcharged for the attorneys’ fees under any theory? Who pays when there is no recovery or not enough recovery? The absence of good answers to these questions may be part of the reason there is so little avoidance and recovery litigation by standing trustees in Chapter 13 cases. There is no clear path through the Code to reimburse the litigation expenses of a standing Chapter 13 trustee.
If any portion of the recovery is subject to exemption by the debtor, the mathematics of the trustee’s litigation becomes even less reasonable. If the trustee brings the avoidance or recovery litigation and the debtor is able to exempt some or all of the recovered property, is the preference recovery a “payment received by” the trustee for purposes of the percentage fee under 28 U.S.C. § 586(e)(2)? Does it make any sense that the trustee’s attorneys’ fees would be recoverable from the estate as an administrative expense? The exemption will deplete the cash available to pay that fee, and payment of the fee as a priority claim under § 1322(a)(2) would take money away from other creditors—all to the benefit of the debtor. Payment of attorneys’ fees from the general expense fund would be just as odd—then all the Chapter 13 cases in the district contribute to paying attorneys’ fees to create an exemption that is personal to one debtor. Pretty good deal for the debtor.
The Chapter 13 trustee should avoid these strange outcomes by refusing to bring avoidance or recovery litigation that would only benefit the debtor. This area of Chapter 13 practice deserves some further attention from Congress. There is need for a provision for allowance of compensation and reimbursement of expenses in individual Chapter 13 cases in which the standing trustee incurs expenses that benefit only the creditors or the debtor in a particular case.
Theoretically, the debtor could include a provision in the plan requiring the Chapter 13 trustee to pursue a preference or fraudulent conveyance or to seek recovery of some prepetition (or postpetition) transfer of property. If the avoidance or recovery action will only benefit the debtor by creating an exemption, the trustee should object to confirmation and argue that the debtor should bring the action under § 522(h) and that the debtor should bear the expense of litigation. If the recovery or avoidance action will benefit creditors, the trustee should argue that the plan must pay litigation expenses as a condition of confirmation.
More difficult is the situation in which a Chapter 13 debtor committed prepetition transfers that are avoidable or recoverable by the trustee, the transfers are not subject to exemption by the debtor under § 522(h), the debtor is financially unable to pay what creditors would receive in a Chapter 7 case unless the trustee pursues the avoidance or recovery actions, and thus the plan provides that the Chapter 13 trustee will avoid or recover the transferred property for distribution to creditors. In this situation, creditors have a right to be paid the value of property that could be recovered by the trustee, but there is risk with respect to the expenses of the litigation. The trustee should insist as a condition of confirmation that litigation expenses will be paid from the recovery in the specific case. If the litigation is unsuccessful, the expenses incurred may deplete funds available for creditors or may break the Chapter 13 case altogether.
A creditor that believes the debtor has committed an avoidable transfer should ask the trustee to either object to confirmation (if the value of the transfer is not accounted for in the plan) or to commence an avoidance action. Absent cooperation from the trustee, the creditor may have to raise the transfer as an objection to confirmation—the best-interests-of-creditors test,25 or disposable income test26—or take the extraordinary step of asking the bankruptcy court for permission to recover the transfer.
When the Chapter 13 trustee does hire counsel to bring an avoidance action, the hiring process will be subject to the usual Code provisions governing a trustee’s transactions with attorneys. For example, in In re Abrass,27 the standing trustee applied to hire a law firm that also represented the largest unsecured creditor to pursue a prepetition fraudulent conveyance. The application was denied under § 327(a) because the law firm was not disinterested. The alternative request under § 327(e) was also denied because the tasks to be performed were stated too broadly to fit the special counsel requirement of § 327(e) and the law firm had never previously represented the debtor as § 327(e) requires.
The Bankruptcy Reform Act of 1994 created new imperatives for Chapter 13 trustees to undertake avoidance and recovery actions. 11 U.S.C. § 546(a)(1) was amended to preclude avoidance or recovery litigation after two years after the filing of a Chapter 13 case.28 Chapter 13 trustees must consider their fiduciary obligations to recover preferences and the like before the two-year limitations period in § 546(a)(1) expires. Not to do so exposes creditors to the loss of the value of property that is recoverable or liens that are avoidable in the event of conversion to Chapter 7 after two years after the filing of the Chapter 13 case. A Chapter 13 trustee who allows the limitations period in § 546(a)(1) to pass without filing available avoidance or recovery actions may face liability if the Chapter 13 converts to Chapter 7.
Chapter 13 trustees should also be wary of the effect of confirmation on avoidance or recovery actions. Discussed in more detail elsewhere,29 confirmation of a plan that does not preserve the trustee’s right to bring avoidance actions may be preclusive of avoidance litigation with the holders of claims provided for by the plan.30
1 See Tower Loan of Miss., Inc. v. Maddox (In re Maddox), 15 F.3d 1347 (5th Cir. 1994) (Chapter 13 trustee has standing to assert lien avoidance under § 522(f). This standing arises from § 1302 and from the history of Chapter 13 generally. Opinion reserves the question whether Chapter 13 trustee has standing to recover preferences.); Stewart v. Barry County Livestock Auction, Inc. (In re Stewart), 282 B.R. 871 (B.A.P. 8th Cir. 2002) (Use of cashier’s checks to cover personal checks dishonored in livestock transactions was neither a contemporaneous exchange nor the ordinary course of business in preference action by debtor and trustee.); Buffalo Metro. Fed. Credit Union v. Mogavero (In re Cooley), No. 00- CV-0345E(M), 2001 WL 135822 (W.D.N.Y. Feb. 13, 2001) (Chapter 13 trustee can avoid lien on car perfected during the preference period.); IRS v. Diperna, 195 B.R. 358, 360 (E.D.N.C. 1996) (Chapter 13 trustee’s power to avoid statutory lien of the IRS under § 545 does not include the superpriority given to certain purchasers in 26 U.S.C. § 6322. Chapter 13 trustee joined with debtor in a motion to avoid the IRS’s statutory lien on a car and household goods with an individual value of $250 or less pursuant to § 545(2) and 26 U.S.C. § 6323(b). Although I.R.C. “does give superpriority to those who purchase certain property from the taxpayer,” bona fide purchaser status of a trustee does not include the special rights of a “purchaser” under § 6323(b) of the I.R.C.); Wood v. Mize (In re Wood), 301 B.R. 558, 562 (Bankr. W.D. Mo. 2003) (Because debtor lacks standing under § 547 to avoid lien, Chapter 13 trustee is an indispensable party to the debtor’s preference complaint; after substitution, trustee can avoid the lien under § 547. “[T]he trustee is an indispensable party within the context of this proceeding because he is the only person with standing to bring the action and full relief cannot be accorded the creditors of the estate without his joinder.”); Sensenich v. Molleur (In re Chase), Nos. 02-10582, 02-1054, 2003 WL 22247749 (Bankr. D. Vt. Sept. 29, 2003) (unpublished) (Distinguishing BFP v. Resolution Trust Corp., 511 U.S. 531, 114 S. Ct. 1757, 128 L. Ed. 2d 556 (1994), strict foreclosure without a public sale can be challenged by Chapter 13 trustee as a fraudulent conveyance.); Sumski v. Daggett (In re Hoxie), Nos. 02-11794-JMD, 02-1127-JMD, 02-1140-JMD, 2003 WL 21991631, at *3–*4 (Bankr. D.N.H. July 24, 2003) (unpublished) (In trustee’s preference action to avoid ex-spouse’s prepetition lien, ex-spouse was not an insider for purposes of § 547 because “the Divorce Decree was final on December 1, 2000 and the Defendant was an ex-spouse of the Debtor in August of 2001. Therefore, in the absence of any allegations that the Defendant was in a position to control or influence the Debtor in August of 2001, the Defendant was not an insider of the Debtor in August of 2001.” With respect to the trustee’s request for turnover of personal property awarded to the debtor by the state domestic relations court, “[u]nder principals [sic] of comity and out of deference to the superior court’s expertise in applying state domestic relations law,” bankruptcy court lifts the automatic stay.); Hildebrand v. Hays Imports, Inc. (In re Johnson), 279 B.R. 218 (Bankr. M.D. Tenn. 2002) (Standing trustee has fiduciary duty to avoid vulnerable security interests, and confirmation does not preclude trustee’s avoidance action.); In re Corley, No. 00-51297 RFH, 2001 WL 1855336, at *3 (Bankr. M.D. Ga. Aug. 1, 2001) (unpublished) (Trustee cannot use strong-arm power to avoid a car lender’s lien that was inadvertently released. A bank teller “mistakenly and inadvertently” delivered the certificate of title to the debtor when the car loan was not paid in full. The debtor did not deliver the title to the Department of Revenue, and thus a new certificate of title was not issued indicating that the bank’s security interest had been released. Because all of the steps necessary to release the bank’s security interest had not been completed, “Respondent’s security interest remains perfected. . . . [The trustee] cannot avoid Respondent’s security interest under section 544(a)(1).”); Griffin v. Security State Bank (In re Huntzinger), 268 B.R. 263 (Bankr. D. Kan. 2000) (Only Chapter 13 trustee has standing to avoid unperfected security interest in contract for deed; because bank did not file financing statement, trustee’s judgment lien creditor status trumps the bank’s security interest and the trustee recovers payments under the contract.); Smith v. American Honda Fin. Corp. (In re Marshall), 266 B.R. 554 (Bankr. M.D. Ga. 2001) (Chapter 13 trustee cannot avoid car lender’s security interest notwithstanding that lender erroneously released lien and mailed certificate of title to the debtor because underlying debt was not satisfied and debtor did not deliver the lien release to the Department of Revenue.); Wasserman v. Household Realty Corp. (In re Barkley), 263 B.R. 553 (Bankr. N.D. Ohio 2001) (Chapter 13 trustee can avoid Ohio mortgage defectively executed in the presence of only one witness using strong-arm power in § 544(a).); Hope v. United Cos. Funding, Inc. (In re Holder), 260 B.R. 571 (Bankr. M.D. Ga. 2001) (Chapter 13 trustee’s avoidance action under § 547 fails because lender perfected its security interest more than 90 days before the petition. However, because perfection of security interest was in violation of codebtor stay in former spouse’s separate Chapter 13 case, lender’s lien is void and the debt is an unsecured claim.); In re Revelle, 256 B.R. 905 (Bankr. W.D. Mo. 2001) (Bankruptcy court denies Chapter 13 trustee’s motion to approve settlement of fraudulent transfer claims against the conservators of a trust for the debtor’s children: debtor’s release of claims to life insurance proceeds after the debtor’s conviction for murdering his wife but before that conviction was reversed on appeal was subject to attack as a fraudulent transfer and should not be settled on any basis less than 100% payment of unsecured claims through the Chapter 13 plan.); GAF Linden Employees Fed. Credit Union v. Robertson (In re Robertson), 232 B.R. 846, 853 n.11 (Bankr. D. Md. 1999) (Although Chapter 13 trustee has standing to bring an avoidance action under § 544, avoidance of an unperfected lien on a car “would create no additional benefit to the estate nor burden upon the creditor” because the unperfected security interest is automatically subordinated to the estate’s interest in the collateral pursuant to § 9-301 of the UCC.); In re Johnson, 232 B.R. 399 (Bankr. W.D. Mo. 1999) (Sustains trustee’s objection to secured claim and motion to avoid lien because car lender’s lien was perfected outside of the 20-day relation-back in § 547(c)(3)(B).); Simione v. Nationsbank of Del., N.A. (In re Simione), 229 B.R. 329, 335 (Bankr. W.D. Pa. 1999) (Chapter 13 trustee prevails in fraudulent conveyance action against debtor’s cousin. As attorney-in-fact for the debtor, two months before filing the petition, cousin executed a $25,000 mortgage on behalf of the debtor in consideration of future services to be performed by the cousin. “The purported consideration of future support and remodeling expense for the Note and Mortgage do not constitute value at the time of the Transfer. The Transfer caused the Debtor to become insolvent and no reasonably equivalent value was given to the Debtor in exchange for the Transfer. Under § 548(a)(2), no proof of actual intent to hinder, delay, or defraud creditors is required.” Any unsecured claim that the cousin might assert is equitably subordinated because cousin used authority as attorney-in-fact to try and place all of the debtor’s assets beyond the reach of legitimate creditors.); In re Dukes, 213 B.R. 202 (Bankr. S.D. Ga. 1997) (Trustee can use § 544 to defeat security interest of car lender that was released through an employee error, notwithstanding that the debtor traded the unencumbered car to another dealership for another car. Lender must be treated as an unsecured claim holder through the plan.); In re Brennan, 208 B.R. 448 (Bankr. S.D. Ill. 1997) (Chapter 13 trustee can use § 544 to avoid unperfected security interests in personal property.); In re Bonner, 206 B.R. 387, 388 (Bankr. E.D. Va. 1997) (“[T]he avoidance powers of § 544 extend to trustees in Chapter 13 . . . . [A]t least one court in this district has held that a Chapter 13 debtor shares the trustee’s status as a hypothetical lien creditor under § 544. . . . Since either the trustee or the debtor is deemed to have exercised the hypothetical lien creditor’s rights at the time of filing, . . . the transfer of the security interest by the debtor to [the credit union] has been nullified . . . . [The credit union] is therefore unsecured.”); McRoberts v. Transouth Fin. (In re Bell), 194 B.R. 192, 196–98 (Bankr. S.D. Ill. 1996) (Because “the trustee as of the date of filing had the rights of a lien creditor with priority over the unperfected security interest of the defendant creditors, these interests may be entirely avoided by the trustee under 11 U.S.C. § 544(a)(1). . . . Chapter 13 trustee has both statutory and constitutional standing to avoid unperfected liens under § 544(a) when such avoidance would increase the amount of disposable income to be allocated among unsecured creditors and thus benefit the estate. . . . [T]he trustee’s avoidance of the creditors’ liens results in nullification of the transfer of property represented by those liens, and the security transactions are ineffective not only as to the trustee but also as to the debtor. . . . [T]he avoided lien does not simply vanish but is preserved for the benefit of the estate pursuant to 11 U.S.C. § 551. . . . Thus, in a Chapter 13 case, when property of the estate subsequently vests in the debtor upon confirmation of the Chapter 13 plan, see 11 U.S.C. § 1327(b), the debtor acquires his previously encumbered asset free and clear of the avoided lien—subject only to reinstatement of the lien if the case is dismissed prior to the debtor’s discharge. . . . [A]lthough the debtors in these Chapter 13 cases will retain the subject vehicles following bankruptcy, they will have ‘purchased’ them by paying into the plan an amount of money equal to their value as of the effective date of the plan. This amount will be distributed among unsecured creditors of the estate, including the defendant creditors.”); Stephenson v. First Union Nat’l Bank (In re Berry), 189 B.R. 82 (Bankr. D.S.C. 1995) (Chapter 13 trustee’s strong-arm powers under § 544 defeat unperfected security interest in an assignment of debtor’s renewal commissions as an insurance salesman.); Smoot v. Southtrust Mobile Servs., Inc. (In re Smoot), 134 B.R. 960 (Bankr. N.D. Ala. 1991) (Chapter 13 trustee can intervene to exercise strong-arm powers under § 544(a)(1) to avoid the lien of an unperfected security interest.); Einoder v. Mount Greenwood Bank, 55 B.R. 319 (Bankr. N.D. Ill. 1985) (Chapter 13 trustee probably has § 547 power to pursue preferences.); Walls v. Appalachian Tire Prods., Inc., 17 B.R. 701 (Bankr. S.D. W. Va. 1982); Colandrea v. Colandrea, 17 B.R. 568 (Bankr. D. Md. 1982) (Chapter 13 trustee has all the Chapter 5 avoidance powers.); In re Saberman, 3 B.R. 316 (Bankr. N.D. Ill. 1980) (Section 544 strong-arm powers are available to a Chapter 13 trustee.). Contra McRoberts v. S.I.V.I. (In re Bequette), 184 B.R. 327, 333–34 (Bankr. S.D. Ill. 1995) (Chapter 13 trustee lacks standing to avoid postpetition transfer of real property to the purchaser at a prepetition tax sale because “[i]n a Chapter 13 case, the debtor retains control of his assets. . . . [W]hile a Chapter 13 trustee has statutory authority to avoid certain transfers, see 11 U.S.C. § 103(a) . . . the trustee’s standing to bring such actions depends on the effect the avoided transfer would have on the Chapter 13 debtors and their estate.” Debtors did not signal whether they wanted to avoid the tax deed and pay for the property through the plan or allow the property to leave the estate and treat creditors with liens against the property as unsecured claim holders. The trustee “should not be allowed to pursue such action” where the only effect will be to protect the interests of a bank that claims a security interest in the property.); Russo v. Ciavarella, 28 B.R. 823 (Bankr. S.D.N.Y. 1983); In re Carter, 2 B.R. 321 (Bankr. D. Colo. 1980). See also Baker v. Tounda, 53 B.R. 587 (Bankr. W.D. Pa. 1985) (When only one spouse files Chapter 13, the trustee is without standing to attack a prebankruptcy transfer of entireties’ property.).
2 See § 50.1 Turnover of Property, § 50.2 Relief from Garnishments, § 50.3 Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances, § 50.4 Avoidance Powers after BAPCPA, § 50.5 Preferences after BAPCPA, § 50.6 Fraudulent Transfers after BAPCPA and § 50.7 Postpetition Transfers.
3 The Chapter 13 debtor is the party better situated and most likely to have a financial interest in avoiding transfers or recovering property. See §§ 52.1 [ Turnover of Property ] § 50.1 Turnover of Property and 53.1 [ Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances ] § 50.3 Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances.
4 See 11 U.S.C. § 1303 (“[T]he debtor shall have, exclusive of the trustee, the rights and powers of a trustee under sections 363(b), 363(d), 363(e), 363(f) and 363(l).”) (emphasis added). See also § 44.1 [ Debtor Has Exclusive Control of Estate Property ] § 45.1 Debtor Has Exclusive Possession and Control of Estate Property.
5 See 11 U.S.C. § 1306(b) (“Except as provided in a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate.”). See § 44.1 [ Debtor Has Exclusive Control of Estate Property ] § 45.1 Debtor Has Exclusive Possession and Control of Estate Property.
6 11 U.S.C. § 1325(a)(4). See § 160.1 [ In General: Plan Payments vs. Hypothetical Liquidation ] § 90.1 In General: Plan Payments vs. Hypothetical Liquidation.
7 This will be true unless the recovered property would be considered disposable income for purposes of the confirmation test in § 1325(b). See below in this section and § 164.1 [ Projected (Disposable) Income ] § 91.2 Projected (Disposable) Income.
8 11 U.S.C. § 522(g) provides:
(g) Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if—
(1)(A) such transfer was not a voluntary transfer of such property by the debtor; and
(B) the debtor did not conceal such property; or
(2) the debtor could have avoided such transfer under subsection (f)(2) of this section.
9 11 U.S.C. § 522(h) provides:
The debtor may avoid a transfer of property of the debtor or recover a setoff to the extent that the debtor could have exempted such property under subsection (g)
(1) of this section if the trustee had avoided such transfer, if—
(2) such transfer is avoidable by the trustee under section 544, 545, 547, 548, or 724(a) of this title or recoverable by the trustee under section 553 of this title; and
(3) the trustee does not attempt to avoid such transfer.
10 See § 163.1 [ In General ] § 91.1 In General.
11 See, e.g., Wood v. Mize (In re Wood), 301 B.R. 558, 562 (Bankr. W.D. Mo. 2003) (Because debtor lacks standing under § 547 to avoid lien, Chapter 13 trustee is an indispensable party to the preference complaint. “[T]he trustee is an indispensable party within the context of this proceeding because he is the only person with standing to bring the action and full relief cannot be accorded the creditors of the estate without his joinder. . . . [T]he Court will order that [the debtor’s] Complaint be amended to reflect the entry of Richard V. Fink, the chapter 13 trustee, as a party plaintiff.”); Simione v. Nationsbank of Del., N.A. (In re Simione), 229 B.R. 329 (Bankr. W.D. Pa. 1999) (Chapter 13 trustee recovers a fraudulent conveyance from the debtor’s cousin. Cousin, acting as attorney for the debtor, placed the debtor’s assets beyond the reach of legitimate creditors.).
12 See McRoberts v. S.I.V.I. (In re Bequette), 184 B.R. 327, 333–34 (Bankr. S.D. Ill. 1995) (Where the only effect of avoiding the postpetition transfer of property to the purchaser at a tax sale will be to benefit a bank that claims a security interest in the property, the Chapter 13 trustee lacks standing because “[i]n a Chapter 13 case, the debtor retains control of his assets. . . . [W]hile a Chapter 13 trustee has statutory authority to avoid certain transfers, see 11 U.S.C. § 103(a) . . . the trustee’s standing to bring such actions depends on the effect the avoided transfer would have on the Chapter 13 debtors and their estate.” Debtors did not indicate whether they wanted to avoid the tax deed and pay for the property through the plan or allow the property to leave the estate and treat creditors with liens against the property as unsecured claim holders.).
14 194 B.R. 192 (Bankr. S.D. Ill. 1996).
15 194 B.R. at 196. Compare In re Brennan, 208 B.R. 448, 452 (Bankr. S.D. Ill. 1997) (Chapter 13 trustee can use § 544 to avoid unperfected security interests in personal property; however, debtor may then exempt the recovered property and need not increase payments to satisfy the best-interests-of-creditors test. “Under [§ 522(g)] the debtor may exempt property the trustee recovers . . . if the transfer the trustee avoids was either (1) an involuntary transfer of property that the debtor did not conceal or (2) a security interest the debtor could have avoided under § 522(f)(1)(B). . . . Section 522(f)(1)(B) allows the debtor to avoid a nonpossessory, nonpurchase-money security interest in personal property, including . . . . Thus, the debtor may exempt such property once it is brought back into the estate following the trustee’s avoidance of a lien even though the debtor granted a voluntary security interest in the property prior to bankruptcy.” In two of consolidated cases, trustee avoided liens and recovered household goods that could have been exempted by the debtor. The debtors were not required to increase payments to satisfy the best-interests-of-creditors test. In another case, the trustee avoided a lien on a car. Because the lien was voluntarily granted by the debtor and because the car was not the type of property with respect to which the debtor had a lien avoidance power to protect an exemption under § 522(f)(1)(B), the debtor had to increase payments into the plan to reflect the value of the recovered car to satisfy the best-interests-of-creditors test.).
16 See § 50.2 [ Procedure for Lien Avoidance ] § 49.2 Procedure for Lien Avoidance.
17 Tower Loan of Miss., Inc. v. Maddox (In re Maddox), 15 F.3d 1347 (5th Cir. 1994).
18 See also § 164.1 [ Projected (Disposable) Income ] § 91.2 Projected (Disposable) Income.
19 11 U.S.C. § 330(a), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 224, 108 Stat. 4106 (1994), provides in part:
(a)(1) After notice to the parties in interest and the United States trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee . . .
20 11 U.S.C. § 326(b) provides (emphasis added):
(b) In a case under chapter 12 or 13 of this title, the court may not allow compensation for services or reimbursement of expenses of the United States trustee or of a standing trustee appointed under section 586(b) of title 28, but may allow reasonable compensation under section 330 of this title of a trustee appointed under section 1202(a) or 1302(a) of this title for the trustee’s services, payable after the trustee renders such services, not to exceed five percent upon all payments under the plan.
21 See discussion of compensation of Chapter 13 trustee beginning at § 54.1 Standard Percentage Fee and Expenses.
22 28 U.S.C. § 586(e)(2). See § 63.1 [ Standard Percentage Fee and Expenses ] § 54.1 Standard Percentage Fee and Expenses.
23 See § 63.1 [ Standard Percentage Fee and Expenses ] § 54.1 Standard Percentage Fee and Expenses.
24 See § 63.1 [ Standard Percentage Fee and Expenses ] § 54.1 Standard Percentage Fee and Expenses.
25 See discussion of best-interests-of-crediotrs test beginning at § 90.1 In General: Plan Payments vs. Hypothetical Liquidation.
26 See discussion of projected disposable income test beginning at § 91.1 In General.
27 250 B.R. 432 (Bankr. M.D. Fla. 2000).
28 11 U.S.C. § 546(a)(1), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 216, 108 Stat. 4106 (1994). See § 313.1 [ New Schedules, Statement, Meeting of Creditors and Deadlines ] § 142.1 New Schedules, Statement, Meeting of Creditors and Deadlines. See, e.g., Murphy v. Wray (In re Wray), 258 B.R. 777, 782 (Bankr. D. Idaho 2001) (Chapter 7 trustee’s cause of action under § 544 to avoid debtor’s father’s unperfected life estate is barred by § 546(a) because three years passed between filing of Chapter 13 case and conversion to Chapter 7. Equitable tolling is not available because the life estate was revealed during the Chapter 13 case but not pursued by the Chapter 13 trustee. “The chapter 13 trustee, in the exercise of due diligence, would need to verify the existence and bona fides of the alleged life estate. In order for the chapter 13 Trustee to determine that Tony’s plan appropriately paid creditors what § 1325(a)(4) requires, he would need to determine that the disclosed life estate was valid and determine the value of Tony’s residual (or other) interest in this affirmatively disclosed property. And in addition to the trustee’s obligation to evaluate all factors relevant to the confirmation standards of § 1325, he also was required to investigate the financial affairs of the debtor. See § 1302(b), incorporating § 704(4). The Plaintiff has failed to establish the prerequisite of reasonable diligence, and the doctrine of equitable tolling is unavailable.”).
29 See § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.
30 See, e.g., Hildebrand v. Hays Imports, Inc. (In re Johnson), 279 B.R. 218 (Bankr. M.D. Tenn. 2002) (Standing trustee has fiduciary duty to object to secured claims and to avoid vulnerable security interests; confirmation does not preclude trustee’s avoidance action when proof of claim filed after confirmation reveals an avoidable security interest.).