• Allocation of Property Appreciation: A Statutory Approach to the Judicial Dialectic

    Lawrence Ponoroff
    MSU Law Faculty Repository
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    Many, perhaps the majority, of Chapter 13 cases end up being converted to Chapter 7. The converted Chapter 7 case is not a new case, it is a continuation of the case that was commenced with the filing of the original Chapter 13 petition. However, there are important structural differences between the two chapters, including over what constitutes property of the estate. This creates some thorny issues surrounding whether property of the estate as generally defined in section 541(a) of the Bankruptcy Code or property of the estate as specifically defined in Chapter 13 controls in determining the scope of the estate in the converted case. Initially, the circuits were split on this question as it related to earnings and other property acquired by the debtor after filing. Congress resolved that matter in 1994, adopting a new section 348(f)(1), which makes clear that such after-acquired property is excluded from the Chapter 7 estate. In making that choice, the legislative history cited the strong public policy favoring repayment over liquidation and the desire to avoid creating disincentives to debtors' choosing Chapter 13 at the onset. However, the text new subsection did not address all the issues affecting property of the estate, including allocation of increases in the net value of property that was in existence at the time of filing. The legislative history, however, did, suggesting that the intent was to permit the debtor to at least retain increases attributable to payments made secured debt. Nevertheless, once more, the courts have split on this issue, with the most antipodal positions explicable in terms of differing approaches to statutory interpretation. Moreover, there are any number of intermediate positions that can be found in the decisional law between those extremes. This wide spectrum of different approaches to the problem has introduced a high degree of costly uncertainty and disuniformity into the system.
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    1 year ago


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