the morning may it please the court my name is todd unlace and i represent the appellant's the debtors in the underlying chapter thirteen case the issue presented here is whether the under spurstow funds held by a chapter thirteen trustee when the chapter thirteen case is dismissed must be returned to the debtors or paid to the creditors the under spurstow signs and question are proceeds from the post petition self the preposition asset namely the debtors homestead the bankruptcy court ordered that those proceeds lost their exemption because they were not we vested into another homestead within six months and therefore that they were not it became not exempt property the debtors then filed the both the debtor and the trustee filed competing motions to modify the plan to pay those proceeds into the plan the debtor is moved to pay all of the proceeds in the plan but for some proceeds that were reasonable and necessary to pay for eye surgery the trustee on the other hand moved to ask the court to order that all the proceeds be paid into the plan the bankruptcy court during one of the hearings told the debtors that if they wanted to keep the money they could dismiss the case but if they dismissed the case they would get a discharge that's the trade off is what the bankruptcy court said why isn't there i mean if if if the funds go back to the debtor here then there's going to be a feeding frenzy right or i mean well yes accredits it's not like they're going to take him home and buy him buy a nice house or do something i mean or go to name and there this is mean all that means is that they're not going to have a discharge and they're not going to have the protection of the bankruptcy acts so they'll be a feeding frenzy with whatever creditors have not been paid right but as corrected i'm missing something now you're not judge and the purpose of the stated legislative purpose of section three forty nine is to undo the bankruptcy and to unwind it and  paying the creditors is not an underlining task refunding the debtors the property of the estate whether the property is on and in the hands of the trustee whether it's in the hands of the debtor refunding that property is the purpose of section three forty nine after the monies are refunded then the creditors or left with their state court remedies they are not prejudiced they still have the right to pursue any claims or cause of actions are still active even if the limitation is told during the bankruptcy the bankruptcy code provides protection for creditors when the chapter thirteen case is dismissed and that is the limitations are not told until thirty days after the dismissal so the creditors are not prejudiced in any way and the the supreme court ruling in harris purses vigo and is very significant to this case in that opinion that court reverse this court this court had help very similar issue the issue there was what happens to proceeds or funds undistributed finds a trustee hole is holding when the case is converted to a chapter seven and the supreme court said that those under section three forty eight go back to the debtor and there are significant pronouncements in that court even though that dealt with that holding dealt with the case it's converted and now the case is dismissed whether the case into conversion or dismissed should not matter in the court said significantly that once the case is converted the chapter thirteen plan is no longer in the in effect here when the case is dismissed the chapter thirteen plan is no longer in effect this court has also acknowledge that two in in big would be harris however the court here this court said that the don't entirely and wind the confirmation order that the confirmation order is still in effect as to the money that was voluntarily paid to the trustee under the terms of the plan here we have proceeds that were not part of the plan payments the bankruptcy play and did not call for these proceeds to be paid into the plan when the debtor proposed a plan schieffer they proposed to pay eleven hundred dollars a month to the trustee for sixty months these proceeds became property of the estate the debtors proposed to pay a good portion of those in the plan but the modification was denied after at the same time the case was dismissed harris also pointed out that the creditors do not have a vested interest in the proceeds until they're actually paid to the years this courting of him big b harris acknowledged that as well also but that was a different the creditors aren't harm i don't believe if they refund the money to the debtor the debtor is harmed if they don't get to keep the money because of the purpose is to undermine the proceeds for unwind the bankruptcy they had their homestead before the bankruptcy was file until that point the debtors were still trying to stay in the case they had they had made i think they were fifty two or fifty three months in the case they had made plain payments they were behind on someone but they struggled these debtors did not have much money the primary income that they had was thirty five hundred dollars of business income from the debtor he lost his job soon after the bankruptcy was filed and they no longer had that income for the duration of the case they first decided to sell their their their car then they decided to sell their home in the east and they sold their home not for cash to take it was a rat no where the monthly payment that they received under the ra was just enough to pay their plan payment and their mortgage payment that they had to make i think a little bit to pay for a raise more necessary expenses so i could stay in the play and here we are about fifty five and in the balloon note came to an end or a balloon and now we have the proceeds and the debt or some commission to sell the home in the bankruptcy court approved the seller of the home your address the district courts or car determination yes the district court followed three cases or relied on three cases in support of its opinion and those two cases were dared puffer and taurus and the district court in those cases the district court said thirteen section thirteen twenty six determines the outcome because section three forty nine is not does not apply and it said even if it did apply then there is cause and that's because there's no longer a planet effect so let's assume there is cause to for alternate best to add to the case comes to an end in a dismissal who's a trustee going to pay house a trustee going to pay  much are they going to pay the credit is a trustee going to pay the creditors you cannot pay under the terms of the plan according to harris versus v the plan is no longer in effect also harris pronounce that chapter thirteen provisions are no longer in effect section three forty nine is three forty eight was therefore section three forty nine should be but all the provisions in chapter thirteen the baker persico no longer have sw in quote from the the harris opinion  out from under the homestead exemption it goes back to them there's a feeding frenzy the creditors who haven't been paid what flapped my way i'm on eight creditors i don't recall the exact amount them particularly not there they're back in the same position that they were they did have these funds and now these funds are not protected and the creditors if they're gross of enough can reach them i don't see how they can protect those funds it certainly court concluded that three forty nine does not apply we believe it does under harris and the plain language of the statute in addition say that the proceeds should go to credit they did they did but the district court said that according to the bankruptcy code the proceeds best ignoble and i think that's there's no going bankruptcy proceeding they withdraw on their voluntarily i don't understand how they would get disbursed if that was the case and i don't either and that's the purpose of this appeal the trustee even have causes filed to order all to the best and there's no way to to disperse those funds the trustee has no power payments made according to the plan and disperse those payments to creditors that's it also significant to the extent the bank the district court is allowed to order otherwise i would argue that the the bankruptcy an order in effect already so the trustee needs to explain if if the construction that she the rule that she urges this court to follow is that property of the state when the case is  dismissed she may take that money and if cause is found they take that money and pay creditors she's to explain that that rules get applied to all property the state or only property of the state that she possesses that are in her hands at the time the case is concer for cites restoration however does not necessarily occur because section three forty nine provides that a court can order otherwise the bankruptcy court in this case did not act under principles of law when it ordered the trustee to deliver the sales proceeds to the debtors the bankruptcy court made no details findings of fact nor conclusions of law but simply stated that it found no cause to convert the case to chapter seven nor for an involuntary modification of the plan there was no rational basis for this decision and it disregarded texas state law and fifth circuit precedent regarding the status of homestead sales proces which became nonexempt property of the estate long before the debtors disclosed the existence of the proceeds and long before they moved to dismiss and you guys had asked earlier whether or not the creditors would be harmed and they would be harmed it would require that it would require the creditors to run to the courthouse within a certain time frame in a more specifically correct because statute of limitations for most of these creditors has already run the bankruptcy code wholly provides for a thirty day period in which these creditors can theoretically go to the courthouse follow lawsuit obtain a judgment and execute a garnishment all the while the debtors in this case did not disclose the existence of the proceeds it's over so how can you what happens to the how does the trustee have any authority to disperse the funds well your honor the three forty nine is a flexible statute in this to be interpreted broadly so here the court can order in it of itself the delivery of proceeds to somebody other than the debtors in this case they found cause to do so but they d they delivered to the court court found that they were not vested in anyone and so who'd who did the district court give the money to well the district court found it did not best in anyone as it was analyzing three forty nine b three which spoke of the type of property that could reinvest in the debtor at the dismissal of a case in this case it's impossible to return the case to skate status quo which would be the intent of three forty nine because at the filing all that existed was the homestead but at dismissal there were proceeds and there you disagree with opposing counsel that whether frost is implicated frost is absolutely implicated in  us doesn't matter that he's willing to live with frost because it doesn't matter here and you're saying do you need frost frost exposes the proceeds to the satisfaction of creditors claims and in this case had debtors disclosed in accordance with that circuit precedent that the post petition acquisition of the proceeds these proceedings should have been delivered to the creditors three years ago it wasn't until three years after the fact that the home that they made the disclosure and it wasn't until such point that it was a refinance of the balloon note that they filed a notice and it was only because the title company forced the debtors to file a motion with the court in order to proceed with the closing confused about what happens to the money and or your theory what is the trustee going to continue to administer these funds to distribute them to the different creditors trustee would just deliver the proceeds to the unsecured creditors who would be entitled to the proceeds and decide how to distribute them to the end goes creditors so they ran out the unsecured credit yeah it would just be paid on a program basis in accordance with  clickable completely disregard the nature of the dispute in harris because harris dealt with conversion as opposed to dismissal and dealt with post petition wages here we're dealing with proceeds from the sale of a homestead who exemption in the proces was forfeited the minute the debtors took a note receivable and critical here is that harris versus wheeling did not interpret section three forty nine of the code the effect of conversion is guided by section three forty eight of the code whereas dismissal is guided by section three forty nine in concluding that the wages in the possession of the trustee in hurst harris versus a beagle in that they were to be returned to the debtor if the supreme court found support in its conclusion in particular provisions of three forty eight one being section three forty eight f one or property of the estate in a converted chapter seven estate does not include post petition wages the other being section three where the trustee services are terminated at confirmation a conversion no such analogous provisions exist within section three forty nine of the code so your position is that the trustee still has official position provision of the code does the trustee operate under now to send this money out to the criminal three forty nine your honor and sorry forty nine which would allow the court to order that fines be disbursed to someone other conversion to chapter seven but it's funded no cause so they have a disagreement but well there is a question related to what was the underlying basis for that just that decision on appeal the district court in looking at the record clearly made a decision that there was no rational basis considering that fact that the debtors in this case failed to disclose the existence of the proceeds for more than three by this court it with decisions that date back to one nine hundred ninety the debtors in this case completely disregarded that requirement in addition the debtors in this case completely disregarded the requirement to seek port authority to even sell the property in the first place and that's your call that's the cause you say supported the it's just correct your honor that and that's just one of the factors of cause there were there were multiple levels of cause here the failure to disclose the failure to see court authority the failure to reinvest the proceeds within six months which thereby forfeited the exemptions in the proceeds and made them subject to distribution to creditors because they were to satisfy claims of the estate in accordance with this court's decisions in frost in rate england in resentment these decisions have all been decided by the holy in her brief counsel are still very confused why you don't believe the supreme court's case that says estate property does not become property of the creditors until it is distributed to them is applicable here these homestead procedure proceeds did not get distributed to the creditors and then it was dismissed so they never belonged to the creditors the creditors in the bankruptcy they may belong to the creditors in the real world but why how do you not what do you do with the supreme court holding back to this day property is not property of the creditors that's where we go back to section three forty nine of the code which allows for determination of the facts for a cause for for many reasons whether it's by operation of law because of the bad faith acts of the debt or because there's a statutory or equitable basis to deliver proceeds to someone other than the debtor and in this case we happen to have texas homestead laws there was there's a piece of the pot that is subject to distribution to creditors on an equitable basis and three forty nine of the code actually provides that the creditors and the bankruptcy court in the dis on appeal that flexibility to make that determination to make the determination that the proceeds can be delivered to someone other than the debtor in this case that the district court found that three forty nine b three with words with respect to reinvest in property could not take place and was in a political book because the proceeds didn't exist at the commencement of the case and that's the literal reading of three forty nine b three so if you didn't exist in huff which was rendered a few months ago once the character of the homestead is changed you have a new property interest by virtue of section thirteen zero six of the code that three forty nine allows for an alternate district and it can overcome that presumption by finding a cause exists to order otherwise in this case and i think it's really important to know that the debtors were required to file motions with the court and to disclose the existence of the proceeds and they failed to do so for period of three years and then again in a perfect world what should have happened when they sold the house when the house and in the perfect world they should have filed a motion pursuant to section thirteen zero three of the code which notice to creditors and any other interested parties the local role in this district requires the motion to indicate whether the trustee consented or did not consent to the proposed sale that did not occur and notwithstanding the requirement of the debtors to seek court authority to do so they had this ongoing obligation to disclose the proceeds in this case and they had multiple opportunities to fully and freely disclose yet they failed to do so i want suppose they have disclosed that we sold the house the house and we have the house we have the pros then what would have happened well based on t frost which was rendered in two thousand and fourteen we would have argued that the proceeds were not exempt and would have to be distributed to creditors or in exchange for retention of some of the proceeds the debtors could have paid a monthly sum to the trustee over the remaining term of the plant equivalent to the value of the proceeds if we already held that we can distribute  yes that dismissal could would it negate the plan the plan is no longer in existence but your honor we do not really but we do not need the plane and in order to distribute the proceeds to the creditors holds that the trustee can distribute pursuant to i guess it's like the plan terms because you said it was the pro rata share and how would you determine that what court says that the other than the court court could say i'm for cause i'm sitting the money here that's but but that's a different thing than the district court giving it to the trustee and saying here you distribute it to the creditors well it was in the district court remanded the decision to enter for the bankruptcy court to enter an order so that the trustee could then distribute right away the creditors and the creditors that would be in touch with the proceeds in this case because it is a nonexempt asset of the estate would be the unsecured creditors so the unsecured creditors that would be paid would be paid in accordance with the bankruptcy code related to priority scheme and it would be the answer to yours in this case and those creditors who have allowed claims ok tell me what case says that the trustee can has that authority well there are many cases your honor that say that the court can order the order or that the funds be delivered to someone other than the debtor that's not the question i'm asking that t can allow the trustee not through a plan but just sort of in the air through in order to deliver funds to people who used to be in a plan i understand the question your honor in i i do not have a case that i can cite to for that thank you so also a plan in effect for rose a group of creditors there are other creditors there are down the debtors would not be required that they're not allowed to incur additional post petition liabilities but they do i mean they live they continue to incur liabilities so there's that the group of creditors here is not possible claimants to this money is not simply the group that took under the thirteen plan right it would be well that would be the only party in which the trustee could just there you go so what the trustees going to do is we're going to give them to these chapter thirteen people even though the chapter thirteen plan is caput we're going to give it to the chapter thirteen creditors and anybody else that's a creditor that's arisen before or since we have to presume that there were no additional creditors because the debtors on the ledges and hasn't been provided for i mean the possible universe of creditors is not simply the people who took under the plan if the money just goes back to the debtors ok then there are as i say the creditors who didn't get fully paid under the plan they will be there the creditors who may have arisen since then they'll be there it'll be the universe of creditors before and now who will go after their money and no discharge right it's not the same group of creditors in theory in theory yeah well in the world of chapter thirteen debtors it's not just in theory probably not the same creditors some of the same probably the light company still there but every time she goes to the doctor and she pays in full fo doctor's visit the doctor becomes a creditor yes and there are provisions of the bankruptcy code which pride permit the debtor to incorporate those obligations into a plan for distribution with the other pool of creditors  not going to be bring in stuff to the trustee to be included in the plan because there is no longer a plan and or no longer a court to do it well the court could still passengers diction to enter the order that the funds be distributed and specifically to the insecure and creditors in this case the court can fashion in order pursuant to three forty nine what about nonexempt the state property that the trustee is not holding if there was a car or a business equipment i'm referring to the arguments you're posing killed so would you be arguing the same if there were nonexempt cars or business equipment that had not been disclosed for some time and so i'm just trying to figure out how far does this reach to allow the trustee to continue to distribute and be resurrected in this process  would you make records about insurance proceeds that weren't disclosed yes ok would you maybe making this funds in the form of overpayment to the plan payments yes and in fact the trustee has the trustee has requested the bankruptcy court with respect to any fines that may be and it's in her possession to deliver those funds for a finding of cost it would even include post those who don't belong to the trustee overpayments don't belong according to it but it could as additional disposable income that's if there's any am i missing the cases right yes the case is over but i would remind the court that i know just said with respect to negating the plan but specifically i must point the court out to three forty nine b two which specifically identifies those orders that are vacated and those order dismissal are limited to the chapter five type order such as five twenty two i five forty two five fifty or five fifty five thirty three there is no mention that dismissal within three forty nine b three vacate the confirmation order that was created under thirteen twenty five i think we have your argument thank you thank you your hon be determined the distribution of those proceeds to be term and by the bankruptcy court on the rim and how the bankruptcy court know who to pay and how much to pay plans not effect so now it's up to the bankruptcy court well the bankruptcy court as some cases have could happen if this happened to the bankruptcy court then put aside notice to all the creditors and allow them opportunity to follow the motions and to make their claim as to who who should which creator should be paid and which should how much should be paid that makes no sense the purpose of three forty nine is to unwind the bankruptcy code chapter thirteen trustee is really no longer that chapter thirteen trustee she's the former chapter thirteen trustee a debtor if the principal risk the principal risk of failure in a chapter thirteen should be you don't get a discharge it should not be that you lose property that you lose property that you had before the case where you lose property that you acquired after the case was filed especially procedure property that was not provided for under the plan i have no further argument unless a court has quoted it during the course of the plan you always get this modify the player to show that the debtor is going to pay the property of the estate in the player or the trustee needs to modify the playing right but in managing this case there's trustee is no longer got benefit you know any standing as trustee that is correct also important note if the debtor had elected to file chapter seven instead of chapter thirteen these cells proceedings would not be would not be reachable is not applied to chapter seven also at the debtors here elected just to give up and convert this case to a chapter seven the chapter seven creditors would have the chapter seven the state would have no entire them to these can get plan a plan modified so that the creditors can all be paid off and they can fulfill the plan oh or else couldn't the debtor say i'm willing to take my chances i've got all this money now that is how i want to go to allow them to keep certain property as the case here where they need their property to live on chapter thirteen should be a trap door