In re Moore

602 B.R. 40

IN RE: James David MOORE, Jr., Labridget Denise Moore, Debtors

No. 1:16-bk-14947-SDR

United States Bankruptcy Court, E.D. Tennessee.

Signed April 25, 2019

Kenneth C. Rannick, Kenneth C. Rannick, P.C., Chattanooga, TN, for Debtors.

Tracey Hershman Weibert, Chapter 12 & 13 Trustee, Chattanooga, TN, for Trustee.

ORDER AND MEMORANDUM

Shelley D. Rucker, UNITED STATES BANKRUPTCY JUDGE

This matter is before the Court on the chapter 13 trustee's motion to modify the confirmed chapter 13 plan of debtors James Moore and Labridget Moore ("the Debtors") [Doc. No. 56] and the Debtors' objection [Doc. No. 59]. Also before the Court is the Debtors' related Motion for Consent to retain inheritance money to purchase a vehicle [Doc. No. 44], which was filed before the motion to modify, and the trustee's response in opposition [Doc. No. 46]. At the request of the Court, both parties have filed supplemental briefs. [Doc. Nos. 55, 57].

I. Jurisdiction

The Court has jurisdiction to determine this matter pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2)(A) and (L). These are the Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052, made applicable to contested matters by Federal Rule of Bankruptcy Procedure 9014.

II. Factual Background

The Debtors filed chapter 13 bankruptcy on November 15, 2016. The Court confirmed the Debtors' amended plan on February 14, 2017. [Doc. No. 28]. Mr. Moore's father passed away on June 24, 2018, more than 180 days after filing. [Doc. No. 50]. In January or February 2019, Mr. Moore received an inheritance of $ 14,764.83 from his father's estate, which is being administered in the Probate Court of Hamilton County, Tennessee. [Doc. Nos. 44, 50].

On January 21, 2019, the Debtors filed a motion to retain inheritance to purchase a vehicle, pursuant to 11 U.S.C. §§ 1303¹ and 363(b)(1).² [Doc. No. 44]. The trustee objected to the relief requested on the basis that the Debtors were seeking to retain non-exempt funds. [Doc. No. 46]. Soon after, the trustee filed a motion to modify the Debtors' chapter 13 plan, pursuant to § 1329, to increase the dividend to be received by unsecured creditors by the amount of Mr. Moore's non-exempt inheritance. [Doc. No. 56]. The confirmed plan is a 36-month plan with 10 months remaining. [Id. ] The trustee estimates the pro rata dividend to general unsecured creditors will be $ 47. [Id. ] The parties agree that, at a minimum, the Debtors are entitled to exempt $ 9,631. In her motion to modify, the trustee states the remaining $ 5,133.83 should be included in that which the unsecured creditors would receive when applying the best interest of creditors test and that the money should be treated as disposable income. [Id. ]. The joint debt and the individual debt attributable to Mr. Moore specifically exceed the amount of the non-exempt inheritance proceeds. [Doc. No. 55, at 1].

The Debtors argue that the positive change in their circumstances resulting from the inheritance should not be reviewed in isolation without considering their need for a new vehicle and the attendant expenses. [Doc. No. 57, at 6]. They dispute whether the trustee is correctly applying the best interest of creditors test to their plan and challenge whether a requirement that they commit all of their disposable income is applicable to a modified plan. They argue that the need for a working vehicle should be viewed as an additional expense that must be considered in any analysis of a motion to modify. Following a hearing on the motion to retain inheritance, the parties agreed that the exempt portions of the inheritance could be distributed to the Debtors to purchase reliable transportation while the Court determines whether the inheritance is property of the estate and whether the entire amount should be charged against the Debtors' exemptions or treated as increased expenses. An agreed order was entered to that effect. [Doc. No. 50].

III. Legal Analysis

The contested matters at issue concern whether the inheritance is property of the estate and whether the modification proposed by the chapter 13 trustee is confirmable. If the inheritance is not property of the estate, it would not need to be exempted under § 522. If it is property of the estate, then the Debtors' circumstances have changed, and the trustee seeks to modify the plan to provide a greater dividend to unsecured creditors. The trustee argues that the money acquired by the Debtor is like the property specified in § 541, that it is included as property of the estate under § 1306(a)(1), and that the Debtors must comply with the Bankruptcy Code requirements for the use of those funds.

The Debtors contend that the inheritance is excluded from the estate because it would be excluded by § 541(a)(5)(A). If it is not excluded under that code section, then the additional property should be available to help the Debtors complete their plan and for expenses before automatically going to the creditors.

A. Inheritance as Property of the Estate

The Bankruptcy Code defines property of a chapter 13 estate in §§ 541 and 1306. "[T]he interplay between these two sections ... underlies the dispute" now before the Court.³

In re Tinney , No. 07-42020-JJR13, 2012 WL 2742457, at *1 (Bankr. N.D. Ala. July 9, 2012). Section 541(a) provides that a bankruptcy estate is created upon the commencement of the case and describes the property that is included. The estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." § 541(a)(1). It also includes some property acquired after the commencement of the case, such as property a trustee recovers through avoidance action (§ 541(a)(4)), proceeds, products, and rents or profit (§ 541(a)(6)), and relevant to this case, an inheritance received within 180 days of the commencement of the case (§ 541(a)(5)(A)⁴ ). Inheritances received after 180 days are treated like other property acquired postpetition and are excluded from property of the estate.

" Section 541 defines generally what property becomes property of the bankruptcy estate in a chapter under Title 11, but is modified in certain chapters for that particular type of case." In re Gilbert , 526 B.R. 414, 416 (Bankr. N.D. Ga. 2015) (citing 11 U.S.C. § 541(a) ) (footnote in original omitted). For chapter 13 proceedings, § 1306(a) expands the scope of property included in the estate. Id. The relevant portions of the section state:

(a) Property of the estate includes, in addition to the property specified in section 541 of [the Code]—

(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[.]

11 U.S.C. § 1306(a).

Considering the interplay between the two statutes, "an apparent conflict arises ... as to whether the 180-day time restriction applies to inheritances obtained in chapter 13 cases, or whether the extended timeframe contained in § 1306(a)(1) governs." In re Gilbert , 526 B.R. at 416. There is a split in the authorities interpreting whether property inherited outside the 180-day period should be included in a chapter 13 estate. However, "[n]umerous courts have held that § 1306 expands the 180-day time period in § 541(a)(5)(C) to classify an inheritance or other ‘windfall’ received more than 180 days after commencement of the case.... This includes Courts in the Sixth Circuit." In re Sizemore , No. 09-61064, 2013 WL 6328260, at *3 (Bankr. E.D. Ky. Dec. 5, 2013) (citing In re Wetzel, 381 B.R. 247, 253-54 (Bankr. E.D. Wis. 2008) ; U.S. v. Harchar , 371 B.R. 254 (N.D. Ohio 2007) ; Boddie v. PNC Bank, N.A., No. 2:12-cv-158, 2013 WL 443773 (S.D. Ohio Feb. 5, 2013) ); see also In re Wiggins, No. 09-34282, 2012 WL 3889099 (E.D. Tenn. Sept. 7, 2012). "The overwhelming majority of courts to have addressed this issue ‘agree that § 1306 modifies the § 541 time period in Chapter 13 cases.’ " Carroll v. Logan , 735 F.3d 147, 151 (4th Cir. 2013) (quoting In re Vannordstrand, 356 B.R. 788, 2007 WL 283076, at *2 (10th Cir. BAP 2007) (collecting cases)); see also In re Tinney, 2012 WL 2742457, at *1. Additionally, courts adopting the majority position argue that statutory interpretation and congressional intent support their conclusion.

The Fourth Circuit found that the plain language of § 1306 "manifests Congress's intent to expand the estate for [c]hapter 13 purposes by capturing the types, or ‘kind,’ of property described in [§] 541 (such as bequests, devises, and inheritances), but not the 180–day temporal restriction." Carroll , 735 F.3d at 150 (citing 11 U.S.C. § 1306(a) ); see also In re Tinney , 2012 WL 2742457 at *1 (finding that "by its plain language" § 1306 "expands the 180-day time period in § 541(a)(5)(A)" and that "[t]he large majority of courts to address this issue agree" and collecting cases). "[O]n its face, [§] 1306(a) incorporates only the kind of property described in [§] 541 into its expanded temporal framework." Carroll, 735 F.3d at 150 ; see also In re Dale , 505 B.R. 8, 12-13 (9th Cir. BAP 2014) (noting "[t]he Fourth Circuit's decision in Carroll v. Logan is consistent with the great weight of authority interpreting the application of § 1306(a)(1) with respect to postpetition inheritances in chapter 13, explicitly considering the temporal exclusion included in § 541(a)(5)" and ultimately adopting its analysis).

Further, it is a well-established rule of statutory construction that "a specific statutory provision governs a general one." In re Crowell , 305 F.3d 474, 478 (6th Cir. 2002) (citing Sprague v. Gen. Motors Corp., 133 F.3d 388, 405 (6th Cir. 1998) ); see also Am. Bank, FSB v. Cornerstone Cmty. Bank , 733 F.3d 609, 614 (6th Cir. 2013) (citing RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 132 S.Ct. 2065, 2071, 182 L.Ed.2d 967 (2012) ). Applying this canon of...