In re Gonzales

587 B.R. 363

IN RE: Anissas Marie GONZALES, Debtor.

Case No. 17-12712-tl13

United States Bankruptcy Court, D. New Mexico.

Signed July 16, 2018

Peter A. Keys, Silver City, NM, for Debtor.

OPINION

Hon. David T. Thuma, United States Bankruptcy Judge

Before the Court is the chapter 13 trustee's request for guidance about how to respond to a tax levy she received from the State of New Mexico, attempting to levy on money owed to the debtor's bankruptcy counsel. Before the levy, the Court had confirmed a chapter 13 plan and approved $2,940.30 as compensation for counsel's services. The trustee had written a check to counsel for his approved fees, but had not mailed it. Having reviewed the facts and the relevant statutory and case law, the Court finds and concludes that: the tax levy was broad enough to encompass the debt owed to the debtor's counsel; the trustee is holding enough money that is not estate property to pay the debt; the levy did not violate the automatic stay; and the debtor's counsel is entitled to a $1,000 exemption from the levy. The trustee therefore should send the $1,940.30 to the State of New Mexico and $1,000 to debtor's counsel.

I. FACTS ¹

Anissas Marie Gonzales ("Debtor") filed this chapter 13 case on October 27, 2017. Peter A. Keys is her bankruptcy counsel. Debtor filed a chapter 13 plan on November 28, 2017. Her first plan payment of $610 was made on or about December 5, 2017.

The chapter 13 trustee ("Trustee") and a secured creditor objected to confirmation of Debtor's plan. The objections were resolved, and on May 11, 2018, the Court entered an order confirming the plan. By then, Debtor had paid the Trustee $3,660, of which the Trustee was holding $3,294.²

Mr. Keys filed a fee application on May 13, 2018. The Trustee objected. On June 6, 2018, the Court entered a stipulated order approving Mr. Keys' fee application in the amount of $2,940.30.

One June 1, 2018, the Trustee received the first post-confirmation plan payment, for $750.

On June 15, 2018, the Trustee was served with a Warrant of Levy from the State of New Mexico Taxation and Revenue Division ("TRD"). Mr. Keys was identified as the delinquent taxpayer.

When she received the warrant of levy, the Trustee was in the process of making monthly disbursements by check. She had not yet disbursed any money to creditors. The Trustee had printed a check to Mr. Keys for $2,940.30, but had not mailed it. Instead of mailing the check, the Trustee filed the motion for instruction.³

The Court held a hearing on the motion on June 19, 2018, and took the matter under advisement.

II. DISCUSSION

A. The Trustee Owes Money to Mr. Keys.

The confirmed plan in this case provides:

Trustee will pay in full all allowed administrative claims and expenses pursuant to § 507(a)(2) as set forth below, unless the holder of such claim or expense had agreed to a different treatment of its claim ....

The plan then details how Mr. Keys is to be paid. The Court's order allowing his fees is consistent with the plan provisions. Thus, the Trustee (not personally, but as the duly appointed chapter 13 trustee in this case), is indebted⁴ to Mr. Keys for $2,940.30. The Trustee is holding enough money to pay the debt in full, in accordance with the priorities set out in the confirmed plan and the Bankruptcy Code.

B. The Levy Was Broad Enough to Encompass the Trustee's Debt to Mr. Keys.

1. The Tax Levy Statute. N.M.S.A. § 7-1-31 provides:

A. The secretary or secretary's delegate may proceed to collect tax from a delinquent taxpayer by levy upon all property or rights to property of the delinquent taxpayer and convert the property or rights to property to money by appropriate means.

B. A levy is made by taking possession of property pursuant to authority contained in a warrant of levy or by the service, by the secretary or secretary's delegate or any sheriff or certified law enforcement employee of the department of public safety, of the warrant upon the taxpayer or other person in possession of property or rights to property of the taxpayer, upon the taxpayer's employer or upon any person or depositary owing or who will owe money to or holding funds of the taxpayer , ordering the taxpayer or other person to reveal the extent thereof and surrender it to the secretary or secretary's delegate forthwith or agree to surrender it or the proceeds therefrom in the future, but in any case on the terms and conditions stated in the warrant.

(emphasis added). It is clear from the italicized language that TRD is authorized to levy against amounts owed by depositaries and other third parties to delinquent taxpayers. See also N.M.S.A. 58-1-7 (TRD may levy against a deposit account, in accordance with § 7-1-31 ). In this respect, the tax levy is like a garnishment. See N.M.S.A. § 35-12-1 et seq.⁵

2. The Warrant of Levy. N.M.S.A. § 7-1-32 prescribes what a warrant of levy must contain. Surprisingly, it says nothing about debts (other than wages) owed to the taxpayer. Thus, while § 7-1-31(B) makes clear that tax levies may apply to debts as well as property, § 7-1-32 does not.

The warrant of levy served on the Trustee complied with § 7-1-32, but has additional language that probably was intended to encompass debts. The third paragraph of the warrant provides: "You are ordered to reveal the property or rights in your possession (or with respect to which you are obligated) belonging to the taxpayer...." (emphasis added). This parenthetical is repeated in the next paragraph. Use of the word "obligated" echoes the term in § 7-1-34(A): "Any person in possession of or obligated with respect to property or rights to property subject to levy upon which a levy has been made shall surrender the property or rights, or discharge such obligation ...." (emphasis added).

The Court concludes that it was the intention of the New Mexico legislature to give TRD the power to levy on debts owed by third parties to delinquent taxpayers. Further, the Court concludes that TRD intended to levy on debts owed to Mr. Keys when it served the warrant of levy in this case.⁶ The language in the warrant is ambiguous and unclear, but the best interpretation, all things considered, is that the warrant includes debts owed to Mr. Keys.

C. The Funds the Trustee Held on Confirmation Were Mostly not Estate Property.

On June 15, 2018, the Trustee held about $3,969, of which $675⁷ was received post-confirmation.

1. Pre-Confirmation Property of the Estate. When a debtor files a chapter 13 bankruptcy case, an estate is created. § 541(a).⁸ The estate includes all the debtor's real and personal property, including property acquired post-petition (e.g., post-petition wages). § 1306(a). Debtors are required to file a plan within 14 days after the petition date, Fed. R. Bankr. Pro. 3015(b), and to begin making plan payments within 30 days after the petition date. § 1326(a)(1). Plan payments are made to the chapter 13 trustee. § 1326(a)(1)(A). There is no question that, before plan confirmation in this case, all plan payments made by Debtor were estate property.

2. Post-Confirmation Property of the Estate. Plan confirmation muddies the waters. Section 1327(b) provides:

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.

This language seems clear enough: unless the plan or a court order provides otherwise, all property of the estate vests in the debtor. The confirmation order in this case does not address vesting, and Debtor's plan does not provide otherwise.⁹

The difficulty lies in harmonizing § 1327(b) with § 1306(a), which provides:

(a) Property of the estate includes, in addition to the property specified in section 541 of this title—

(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first; and

(2) earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first.

Thus, while § 1327(b) vests all estate property in the debtor on plan confirmation, § 1306(a) implies that a bankruptcy estate will exist until the case is closed, dismissed, or converted, and will be augmented by after-acquired property and post-petition wages.¹⁰

Courts have proposed several ways to reconcile §§ 1306(a) and 1327(b). Some courts focus on § 1327(b), conclude that the estate terminates on confirmation, and hold that post-confirmation wages and property revert to the debtor. See, e.g., In re Petruccelli, 113 B.R. 5 (Bankr. S.D. Cal. 1990) ; In re Dagen , 386 B.R. 777, 782 (Bankr. D. Colo. 2008), citing Oliver v. Toth (In re Toth), 193 B.R. 992 (Bankr. N.D. Ga. 1996) ; Shell Oil Co. v. Capital Fin. Servs., 170 B.R. 903, 905-06 (S.D. Tex. 1994) ; In re Mason , 51 B.R. 548 (D. Ore. 1985). These cases limit the function of § 1306(a) to the confirmation date, unless the plan provides otherwise.¹¹

A competing view focuses on § 1306(a) and holds that all property remains estate property after confirmation. See, e.g., Annese v. Kolenda, 212 B.R. 851, 853 (W.D. Mich. 1997) (all property remains estate property post-confirmation); In re Tarby, 2012 WL 1390201 (Bankr. D.N.J.) (same); In re Aneiro, 72 B.R. 424, 429 (Bankr. S.D. Cal. 1987) (same). These cases interpret "vesting" under § 1327(b) as something less than the transfer of full title. In Tarby , for example, the court stated:

The legal definition of the term "vest" provides several alternatives:

vest, vb (15c) 1. To confer ownership (of property) upon a person. 2. To invest (a person) with the full title to property. 3. To give (a person) an immediate, fixed right of present or future enjoyment.

Black's Law Dictionary 1699 (9th ed. 2009).

The last of these alternatives, "to give (a person) an immediate, fixed

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