Appreciation of Real Estate Between Chapter 13 to 7 Belongs to the Estate

Appreciation of Real Estate Between Chapter 13 to 7 Belongs to the Estate

| Dec 14, 2015 | Bankruptcy |

In a recent case, In re Gons, 2015 WL 6082125 (Bankr. E.D.Va. 10.15.15), the bankruptcy court granted the Chapter 7 Trustee’s motion to sell the debtor’s real estate because there was equity in the property sufficient to pay claims.

In the Goins case, the debtor filed for Chapter 13 in 2011. At the time of filing he owned real property that was worth $98,000 and was subject to a mortgage of $107,791. For years later in 2015 he converted the case to Chapter 7. At the time of conversion he owed $76,000 on the mortgage and the property increased in value to $147,500. The Chapter 7 trustee filed an application to employ a real estate agent to sell the property. The debtor sought to have the trustee abandon the property.

The court held a hearing on the issue and found that under Section 541(a)(6) of the Bankruptcy Code, the equity created by the post-petition, pre-conversion appreciation of the property was, and still is, included in the Chapter 7 estate. The Chapter 7 trustee agreed that a portion of the equity, $27,000 was attributable to the post-petition mortgage payments made by the debtor, and the balance of the equity belonged to the estate. The court agreed with the trustee’s analysis.

As a Chapter 7 trustee myself, I would caution debtor’s attorneys to investigate the value of their client’s real estate before converting a Chapter 13 case to a Chapter 7. If there is a significant increase in value, as there has been in the last year in certain counties in Maryland, the Chapter 7 trustee may seek to sell the real estate, leaving the debtor without a house.

If you are considering filing for bankruptcy and have questions and concerns about how your property will be treated in your bankruptcy case, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com.