IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 17-50297

In the Matter of: MANUEL PALOMERA LOPEZ; DOLORES RONQUILLO 

LOPEZ

 Debtors

--------------------------------------

MARY K. VIEGELAHN, 

 Appellee,

v.

MANUEL PALOMERA LOPEZ; DOLORES RONQUILLO LOPEZ, 

 Appellants.

Appeal from the United States District Court 

for the Western District of Texas

Before KING, ELROD, and GRAVES, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

In this Chapter 13 bankruptcy case, debtors sold their Texas homestead

and did not use the sale proceeds to purchase another home. The debtors later 

voluntarily dismissed their bankruptcy case. The bankruptcy court 

determined that the debtors were entitled to the return of the homestead

proceeds because they voluntarily dismissed their case. The district court 

disagreed, concluding that the proceeds should remain with the trustee for 

United States Court of Appeals

Fifth Circuit

FILED

July 31, 2018

Lyle W. Cayce

Clerk

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No. 17-50297

2

distribution to creditors in the dismissed bankruptcy proceeding. Determining

that the bankruptcy court’s decision was correct, we REVERSE the judgment 

of the district court as to the disbursement of the proceeds; AFFIRM the 

district court’s judgment regarding the debtors’ motion to dismiss and the 

trustee’s motion to modify; and REINSTATE the order of the bankruptcy court 

directing the trustee to return the homestead proceeds to the debtors. 

I.

In 2009, Manuel Palomera Lopez and Dolores Ronquillo Lopez 

(hereinafter, the Debtors) filed a voluntary petition under Chapter 13 of the 

Bankruptcy Code in the United States Bankruptcy Court for the Western 

District of Texas. In their petition, the Debtors listed a property in San 

Antonio as their homestead, which they claimed as exempt under 11 U.S.C. 

§ 522(b)(3), the Texas Constitution, and the Texas Property Code. The Debtors 

proposed a Chapter 13 plan under which they would pay a monthly plan 

payment of $1,100 for 60 months. The bankruptcy court confirmed the 

Debtors’ plan. The confirmation order provided in part that:

All property of the estate, including . . . other property which may 

become part of the estate during the administration of the case, 

shall not revest in the Debtor. Such property as may revest in the 

Debtor shall so revest only upon further Order of the Court or upon 

dismissal, conversion, or discharge.

In the course of this case, Mary K. Viegelahn, the Standing Chapter 13 

Trustee for the Western District of Texas (hereinafter, the Trustee), filed three

motions to dismiss. In 2011, the Trustee filed the first motion to dismiss

alleging that the Debtors were in arrears with their plan payments, rendering 

the plan infeasible unless the Debtors cured the arrears or increased the 

amount of their monthly plan payments. In response, the Debtors filed a 

motion to modify the plan, stating that they were no longer able to afford the 

plan payments because Manuel Lopez had been incarcerated for the past ten 

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months and was unable to provide financial assistance. The Debtors also 

stated that Dolores Lopez “has been working side jobs but her income is 

insufficient to afford the plan payment.” The Debtors proposed to surrender a 

vehicle to reduce the plan payments and stated that this modification would 

allow them to successfully complete the plan. The bankruptcy court granted 

the Debtors’ motion to modify and dismissed the Trustee’s motion to dismiss 

as withdrawn. In 2013, the Trustee filed a second motion to dismiss, alleging 

that the Debtors had failed to make required plan payments and were in 

arrears. In response, the Debtors filed a motion to modify the plan, which the 

bankruptcy court granted. In June 2014, the Trustee filed a third motion to 

dismiss because of continued failure to make plan payments. 

In August 2014, the Debtors filed a nunc pro tunc motion1 to sell 

property, through which they sought permission to sell the property designated 

in their petition as their homestead. In their motion, the Debtors stated that 

the homestead property was sold in July 2011 on a wrap-around note with a

balloon payment. According to the Debtors, Dolores Lopez needed the proceeds 

to pay for “mandatory eye surgery.” In her amended objections to the Debtors’ 

nunc pro tunc motion to sell their homestead, the Trustee questioned why the 

Debtors did not seek permission from the bankruptcy court to sell their 

homestead in 2011. The Trustee also emphasized that, under Fifth Circuit 

precedent in Viegelahn v. Frost (In re Frost), 744 F.3d 384 (5th Cir. 2014), 

proceeds from the sale of a homestead become property of the estate if not 

reinvested in another home within six months. Thus, the Trustee maintained 

that the Debtors could not use the homestead proceeds for eye surgery even if 

the surgery was mandatory. 

 

1 “Nunc pro tunc translates ‘now for then.’” MortgageAmerica Corp. ex rel. Knostman 

v. Am. Fed. Sav. & Loan (In re MortgageAmerica Corp.), 831 F.2d 97, 97 n.1 (5th Cir. 1987) 

(citing Fanelli v. Hensley (In re Triangle Chems., Inc.), 697 F.2d 1280, 1285 (5th Cir. 1983)). 

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The bankruptcy court approved the Debtors’ nunc pro tunc motion to sell 

their homestead. However, the court ordered that the net proceeds from the 

sale of the homestead—after all claims secured by liens on the property, ad 

valorem taxes, and closing costs had been satisfied—be submitted to the 

Trustee. The Trustee then filed a motion to modify the plan, asserting that the 

net sale proceeds must be disbursed to creditors. 

In response to the Trustee’s pending third motion to dismiss, the Debtors 

filed a motion to modify the plan. The Debtors stated that they had fallen 

behind in their plan payments because Manuel Lopez was no longer in the 

United States and had been unable to remit money for the plan payment and 

because Dolores Lopez had been sick and had not been receiving enough 

income to remit the plan payment. They also stated that Dolores Lopez was 

scheduled for eye surgery that would cost approximately $20,000. Noting that

they were over $4,000 in arrears, the Debtors proposed remitting a lump sum 

of the net proceeds from the sale of their homestead less Dolores Lopez’s

medical costs related to her eye surgery.

In December 2014, the bankruptcy court held a hearing on the Trustee’s 

third motion to dismiss the case for failure to make plan payments. At the 

close of the hearing, the bankruptcy court indicated that it would allow Dolores

Lopez to pay her eye surgery bills from the net sale proceeds, stating “and then 

the rest of it’s going to come in. Unless [Dolores Lopez] wants to dismiss the 

case. If she wants to dismiss the case, she can keep it all, but then she won’t 

have a discharge. So, that’s the trade-off.” (emphasis added). Later that 

month, Independence Title Company delivered $42,148.58 from the sale of the

homestead to the Trustee. A month later, the Debtors—choosing a solution 

that the bankruptcy court said was available—filed a motion to voluntarily 

dismiss their Chapter 13 case. 

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The Trustee filed objections to the Debtors’ motion to dismiss. In her 

amended objections, the Trustee asserted that the bankruptcy court should 

deny the motion in part because the Debtors sought dismissal in bad faith. The 

only evidence of bad faith that the Trustee alleged was that “[t]he Debtors 

initially sold property of the estate without court authority[] and did so 

approximately three . . . years ago,” and that the Debtors “now seek to dismiss 

this case and retain a ‘windfall’ at the expense of their unpaid creditors.” The 

Trustee also maintained that “cause” existed under 11 U.S.C. § 349(b) to keep

the homestead proceeds from returning to the Debtors. Thus, the Trustee 

requested that the bankruptcy court deny the Debtors’ motion to dismiss and 

grant the Trustee’s motion to modify or, if the case was dismissed, find “cause” 

to order that funds held by the Trustee—i.e., the $42,148.58 in net sale 

proceeds plus all plan receipts not yet distributed—be disbursed to the Debtors’ 

creditors. 

In February 2015, the bankruptcy court held a hearing on the Trustee’s 

motion to dismiss, the Trustee’s motion to modify the plan, and the Debtors’ 

motion to dismiss. The court inquired as to why the Debtors had sold their 

homestead without first obtaining court approval. Counsel for the Debtors 

responded:

I don’t know, Judge. [Dolores Lopez] basically was told by a realtor 

or some third party that she could sell it. If you remember, her 

husband got deported to Mexico. And they were having trouble 

funding the plan, funding the house payment. And then they 

decided that a way to solve that problem was to sell the house, get 

some money. 

Counsel for the Debtors also clarified that after Dolores Lopez sold the home, 

she began receiving payments on the wrap-around note. Those payments were 

somewhat greater than the payments that she continued to make on the first 

lien note on the home, allowing her to use the difference for expenses, including 

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plan payments. When the balloon payment became due, it appears that 

Dolores Lopez stopped receiving payments on the wrap-around note, 

preventing her from continuing to make plan payments. 

The bankruptcy court granted the Debtors’ motion to voluntarily dismiss 

their case. The court stated that “[a]lthough Dolores Ronquillo Lopez sold her 

homestead without prior approval of the Court, the Court does not find cause 

for conversion to Chapter 7 or for an involuntary modification of the Chapter 

13 Plan.” Moreover, the bankruptcy court ordered that the funds from the sale 

of the homestead be transferred from the Trustee to Dolores Lopez after 

payment of the Trustee’s commission. The bankruptcy court also entered 

orders dismissing as moot the Trustee’s third motion to dismiss and the 

Trustee’s motion to modify. 

The Trustee appealed to the district court. The district court determined 

that the homestead proceeds should be distributed to the creditors under the 

Chapter 13 plan—even though the plan was now defunct. Moreover, the 

district court held that, even if the proceeds would ordinarily vest in the 

Debtors upon dismissal, “cause” existed under 11 U.S.C. § 349(b) to order that 

the proceeds be distributed to the creditors. The district court then entered an 

order that: (1) affirmed the bankruptcy court’s order dismissing as moot the 

Trustee’s motion to modify the plan; (2) affirmed the portion of the bankruptcy 

court’s order granting the Debtors’ motion to dismiss; (3) reversed the portion

of the order requiring that the funds held by the Trustee be returned to the 

Debtors; and (4) remanded the case to the bankruptcy court “to enter an order 

allowing the trustee to disburse [the homestead proceeds] to the creditors in 

accordance with this Court’s order and the Chapter 13 plan in this case.” The 

Debtors timely appealed. 

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II.

“We review ‘the decision of a district court sitting as an appellate court

in a bankruptcy case by applying the same standards of review to the 

bankruptcy court’s findings of fact and conclusions of law as applied by the 

district court.’” Endeavor Energy Res., L.P. v. Heritage Consol., L.L.C. (In re 

Heritage Consol., L.L.C.), 765 F.3d 507, 510 (5th Cir. 2014) (quoting Clinton 

Growers v. Pilgrim’s Pride Corp. (In re Pilgrim’s Pride Corp.), 706 F.3d 636, 

640 (5th Cir. 2013)). “Acting as a ‘second review court,’” we review a 

bankruptcy court’s legal conclusions de novo and its findings of fact for clear 

error. Official Comm. of Unsecured Creditors v. Moeller (In re Age Ref., Inc.), 

801 F.3d 530, 538 (5th Cir. 2015) (quoting Fin. Sec. Assurance Inc. v. T-H New 

Orleans Ltd. P’ship (In re T-H New Orleans Ltd. P’ship), 116 F.3d 790, 796 (5th 

Cir. 1997)); ASARCO, L.L.C. v. Barclays Capital, Inc. (In re ASARCO, L.L.C.), 

702 F.3d 250, 257 (5th Cir. 2012). Issues of statutory interpretation are 

reviewed de novo. Nowlin v. Peake (In re Nowlin), 576 F.3d 258, 261 (5th Cir. 

2009). 

III.

A.

As discussed above, in this Chapter 13 bankruptcy case, the Debtors sold 

their Texas homestead and did not use the sale proceeds to purchase another 

home. The Debtors later voluntarily dismissed their bankruptcy case. The 

bankruptcy court determined that the Debtors were entitled to the return of 

the sale proceeds because they voluntarily dismissed their case, but the district 

court disagreed. It is undisputed that the homestead proceeds at issue are nonexempt and became part of the bankruptcy estate prior to dismissal because 

the Debtors did not use the proceeds to purchase another homestead within six 

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months of the sale.2 Thus, what we confront in this case are non-exempt assets 

held by a trustee. The key question is whether these assets are to be returned 

to the Debtors upon the voluntary dismissal of their case.

The Debtors’ plain-text statutory argument is straightforward: 

Dismissal revests property of the estate—here, the homestead proceeds—in 

“the entity in which such property was vested immediately before the 

commencement of the case.” 11 U.S.C. § 349(b)(3). The homestead was vested 

in the Debtors immediately before commencement of the case. Moreover, the 

bankruptcy court did not find “cause” under § 349(b) to order that the proceeds 

be disbursed to someone other than the Debtors. Therefore, the Debtors argue, 

the proceeds belong to them following dismissal. 

We begin with a few background principles. Chapter 13 is a “wholly 

voluntary alternative to Chapter 7, . . . allow[ing] a debtor to retain his 

property if he proposes, and gains court confirmation of, a plan to repay his 

debts over a three- to five-year period.” Harris v. Viegelahn, 135 S. Ct. 1829,

1835 (2015); see 11 U.S.C. §§ 1306(b), 1322, 1327(b). “[T]he Chapter 13 estate 

from which creditors may be paid includes both the debtor’s property at the 

time of his bankruptcy petition, and any wages and property acquired after 

filing.” 135 S. Ct. at 1835; see § 1306(a). A debtor generally has a right to 

voluntarily dismiss her case under § 1307(b) at any time, although the 

bankruptcy court may deny dismissal “for bad-faith conduct or abuse of the 

bankruptcy process.” Jacobsen v. Moser (In re Jacobsen), 609 F.3d 647, 649 

(5th Cir. 2010); see § 1307(b), § 349(b).

 

2 However, at the time the Debtors sold their homestead—almost three years before 

this court’s decision in Frost—it was not clear that the homestead sale proceeds, unlike the 

homestead, would become part of the bankruptcy estate if not reinvested in another 

homestead within six months of the sale. 

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In light of these background principles, we turn to the text of the relevant 

statute, § 349(b)(3) of the Bankruptcy Code. See Nowlin, 576 F.3d at 261 

(“When interpreting a statute, we begin by examining its language.”). Section 

349(b) states that: 

Unless the court, for cause, orders otherwise, a dismissal of a case 

other than under section 742 of this title . . .

(3) revests the property of the estate in the entity in which 

such property was vested immediately before the 

commencement of the case under this title.

11 U.S.C. § 349(b)(3). The Bankruptcy Code does not define the terms “vest” 

or “revest.” See 11 U.S.C. § 101. “When terms used in a statute are undefined, 

we give them their ordinary meaning.” Hamilton v. Lanning, 560 U.S. 505, 

513 (2010) (quoting Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187 (1995)). 

Black’s Law Dictionary defines “vest” to mean, in relevant part: “[t]o confer 

ownership (of property) on a person”; “[t]o invest (a person) with the full title 

to property”; or “[t]o give (a person) an immediate, fixed right of present or 

future enjoyment.” VEST, Black’s Law Dictionary (Bryan A. Garner ed., 10th 

ed. 2014). To “revest” means “[t]o clothe or vest again or anew, as with rank, 

authority, or ownership.” REVEST, Black’s Law Dictionary. Thus, the 

ordinary meanings of both “vest” and “revest” are broad. The homestead 

property was undoubtedly “vested” in the Debtors at the commencement of the 

bankruptcy case, and a key component of the Debtors’ property right in the 

homestead was the right to sell that same property. See 73 C.J.S. Property

§ 47 (2017) (“The right to sell or otherwise dispose of property is an incident to 

the right of ownership.”). Because the Debtors’ right to the sale proceeds was 

inherent in their right to the homestead property, the proceeds were “vested” 

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in the Debtors at the commencement of the bankruptcy case for the purpose of 

§ 349(b)(3).3

Both text and precedent support this conclusion. Holding that 

homestead proceeds that debtors acquire post-petition generally revest in them 

upon voluntary dismissal best comports with § 349(b)(3)’s textual directive to 

return to debtors “the property of the estate” following dismissal.4 “A textually 

permissible interpretation that furthers rather than obstructs the document’s 

purpose should be favored.” Antonin Scalia & Bryan A. Garner, Reading Law: 

The Interpretation of Legal Texts 63 (2012).5 

 

3 Frost does not undermine this conclusion. Frost does not concern the distribution of 

homestead proceeds upon voluntary dismissal, and its distinction between homestead and 

proceeds bears on the Texas exemption question, not on rights of ownership or vesting of 

property. See generally 744 F.3d 384; cf. Hawk v. Engelhart (In re Hawk), 871 F.3d 287, 294 

(5th Cir. 2017) (“In light of the Supreme Court’s decision in [Taylor v. Freeland & Kronz, 503 

U.S. 638 (1992)], it is somewhat difficult to understand how proceeds from the sale of the 

homestead in Frost could be brought into the bankruptcy estate ‘at a time when the 

homestead had already been declared exempt from the estate.’” (quoting Frost, 744 F.3d at 

387)) (distinguishing Frost and holding in a Chapter 7 case that funds in an individual 

retirement account did not lose their exempt status even though Texas law provided that 

proceeds distributed from exempt retirement accounts remain exempt only if reinvested in 

other accounts within sixty days).

4 Compare § 1306(a)(1) (“Property of the estate includes . . . all property of the kind 

specified in [§ 541] that the debtor acquires after the commencement of the case . . . .”), with 

§ 1327(b) (“Except as otherwise provided . . . , the confirmation of a plan vests all of the 

property of the estate in the debtor.”). As noted above, the order confirming the Debtors’ plan 

provides that property of the estate that “may revest in the Debtor shall so revest only upon 

further Order of the Court or upon dismissal, conversion, or discharge.”

 

5 Indeed, under the whole-text canon, we ought to “consider the entire text, in view of 

its structure and of the physical and logical relation of its many parts.” Scalia & Garner, 

Reading Law, at 167. “Context is a primary determinant of meaning” and “[t]he entirety of 

the document . . . provides the context for each of its parts.” Id. Given the Bankruptcy Code’s 

provisions indicating that estate property that had been acquired by debtors post-petition 

generally vests in them and the fact that § 349 alone governs the legal effect of dismissal on 

a Chapter 13 case, § 349(b)(3) must govern the disposition of all estate property upon 

voluntary dismissal under Chapter 13. Interpreting § 349(b)(3) in any other way leads to an 

absurd result that is unnecessary under the plain language of the statute and unsupported 

by the Bankruptcy Code as a whole: property acquired by a debtor that vests in no one and 

can go nowhere upon voluntary dismissal.

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Under our precedent, § 349(b)’s purpose is clear: to “undo the bankruptcy 

case, as far as practicable, and to restore all property rights to the position in 

which they were found at the commencement of the case.” Wells Fargo Bank 

v. Oparaji (In re Oparaji), 698 F.3d 231, 238 (5th Cir. 2012) (quoting In re 

Sanitate, 415 B.R. 98, 105 (Bankr. E.D. Pa. 2009)) (determining that because

dismissal of a bankruptcy case restores the status quo, the parties were no 

longer bound by the terms of the Chapter 13 plan). Indeed, the bankruptcy 

estate ceases to exist upon dismissal. See SEC v. Great White Marine & 

Recreation, Inc., 428 F.3d 553, 556 (5th Cir. 2005) (“An estate is a separate 

legal identity, created on (and by) the filing of a bankruptcy petition, and 

continuing until confirmation, conversion, or dismissal of the case.” (quoting 

In re Herberman, 122 B.R. 273, 278 (Bankr. W.D. Tex. 1990))). Before the 

Debtors in this case initiated their Chapter 13 bankruptcy proceeding, they 

owned a homestead. Restoring the status quo requires returning to the 

Debtors the proceeds from the sale of that asset. See Oparaji, 698 F.3d at 238.6 

That is what the bankruptcy court did.7 

In addition, a trustee lacks any inherent authority to distribute property 

to creditors upon dismissal. Simply put, a trustee has authority to distribute 

funds only pursuant to the express terms of a plan. See § 1326(a)(2); 8 Collier 

 

6 See also First Nat’l Bank of Oneida v. Brandt, 887 F.3d 1255, 1261 (11th Cir. 2018) 

(stating that “insofar as the dismissal of a bankruptcy case is concerned, the aim of § 349(b)

is to return the parties, as far as practicable, to the financial positions they occupied before 

the case was filed”).

 

7 The Trustee argues that the “basic bargain” of Chapter 13 requires distributing the 

homestead proceeds to creditors. Simply put, the Trustee fails to appreciate the nature of 

the Chapter 13 bargain. As the Supreme Court has stated, Chapter 13 proceedings “can 

benefit debtors and creditors alike.” Harris, 135 S. Ct. at 1835. Moreover, the creditors here 

still may pursue any viable state-court remedies against the Debtors. See In re Slaughter, 

141 B.R. 661, 664 (Bankr. N.D. Ill. 1992) (“If the debtors had never filed Chapter 13, they 

would be entitled to possession of their [post-petition] wages in full, subject to whatever rights 

their creditors have to reach part of those wages in satisfaction of their claims under 

applicable nonbankruptcy law and procedure.”).

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on Bankruptcy ¶ 1307.09 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 

2018) (“[U]pon dismissal of a chapter 13 case, the trustee has a duty to return 

to the debtor all property of the debtor held by him or her at the time of the 

dismissal and to take no further steps to implement the chapter 13 plan.”); see 

also Nash v. Kester (In re Nash), 765 F.2d 1410, 1413 (9th Cir. 1985)

(determining that the dismissal of a confirmed Chapter 13 plan “effectively 

vacated” the plan), superseded by statute on other grounds.8 Thus, not only 

does the district court’s interpretation of § 349(b)(3)—that the proceeds vested 

in no one and therefore may go to creditors—conflict with other provisions of 

the Bankruptcy Code, but in making this determination, the district court 

created an untenable situation: a trustee distributing funds to creditors 

pursuant to a Chapter 13 plan when that plan itself is defunct and the case is 

over. Therefore, we hold that under § 349(b)(3) of the Bankruptcy Code, 

proceeds from the post-petition sale of a debtor’s exempt homestead generally 

must be returned to the debtor upon voluntary dismissal.9

 

8 Counsel for the Trustee conceded at oral argument that she could cite to no case that 

allows a trustee, in the absence of an operative plan, to distribute funds to creditors. 

9 It would strain these principles and our caselaw to hold otherwise. Cf. Lowe v. 

DeBerry (In re DeBerry), 884 F.3d 526, 529–30 (5th Cir. 2018) (holding that proceeds from 

the post-petition sale of a pre-petition homestead in a Chapter 7 case remain exempt from 

the debtor’s estate even if they are not reinvested in another homestead within six months 

and stating that “Texas’s homestead exemption . . . has much deeper roots than the 

protections afforded retirement accounts” (citing Perry v. Dearing (In re Perry), 345 F.3d 303, 

316 (5th Cir. 2003) (“Homesteads are favorites of the law, and are liberally construed by 

Texas courts.”))).

Moreover, the Supreme Court recently considered a related issue in Harris v. 

Viegelahn, holding that post-petition wages held by a Chapter 13 trustee at the time of 

conversion to Chapter 7 must be returned to the debtor, not distributed to creditors upon 

conversion. 135 S. Ct. at 1834–35. (Harris v. Viegelahn involved the same trustee as in this 

case; in Harris, the Supreme Court reversed this court’s decision that had held in favor of the 

Trustee. See id. at 1836, 1840.) While not dispositive of the issue before us today because of 

the distinctions between Chapter 13 and Chapter 7 and between conversion and dismissal, 

we find the Court’s analysis instructive. The Court in Harris firmly rejected “the suggestion 

that a confirmed Chapter 13 plan gives creditors a vested right to funds held by a trustee.” 

Id. at 1839. This is because “estate property does not become property of creditors until it is 

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Cogent reasoning from a number of courts also supports our holding. See

In re Edwards, 538 B.R. 536, 539–40 (Bankr. S.D. Ill. 2015) (collecting cases 

and stating that “[a] majority of courts . . . hold that [funds held by the trustee 

when a confirmed Chapter 13 case is dismissed] must be returned to the 

debtor”); Nash, 765 F.2d at 1414 (determining that post-petition wages 

received by the trustee before dismissal must be remitted to the debtors rather 

than distributed to the creditor upon dismissal of the Chapter 13 case); In re 

Slaughter, 141 B.R. 661, 663 (Bankr. N.D. Ill. 1992) (“It would be anomalous 

to give prepetition property of the estate to the debtor under § 349(b)(3) and 

postpetition property of the estate to creditors.”).10 Therefore, § 349(b)(3)

generally requires a trustee to return to debtors the proceeds from the postpetition sale of their exempt homestead upon the voluntary dismissal of their

Chapter 13 case. Simply put, as counsel for the Trustee admitted at oral 

argument, this bankruptcy case is over. There is no Chapter 13 trustee. There 

are no bankruptcy creditors—only creditors.

B.

Under the clear-error standard that we apply to a bankruptcy court’s 

findings of fact, we will reverse only if, “on the entire evidence, we are left with 

the definite and firm conviction that a mistake has been made.” Templeton v. 

O’Cheskey (In re Am. Hous. Found.), 785 F.3d 143, 152 (5th Cir. 2015) 

(quoting Morrison v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 

 

distributed to them.” Id.; see also 11 U.S.C. § 1306(b). Indeed, “[n]o provision in the 

Bankruptcy Code classifies any property . . . as belonging to creditors.” 135 S. Ct. at 1839

(quoting In re Michael, 699 F.3d 305, 312–13 (3d Cir. 2012)).

10 The Trustee contends that Slaughter and analogous cases do not address whether 

there was “cause” to order that post-petition property be distributed to creditors. This is 

beside the point. “Cause” is a separate question. Section 349(b) provides that the bankruptcy 

court may find “cause” to prevent the return of estate property to a debtor. That does not 

undermine the conclusion that § 349(b)(3) requires returning post-petition property to the 

debtor upon dismissal unless such cause is found.

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473, 480 (5th Cir. 2009)). “Although we may ‘benefit from the district court’s 

analysis of the issues presented, the amount of persuasive weight, if any, to be 

accorded the district court’s conclusions is entirely subject to our 

discretion.’” Age Ref., Inc., 801 F.3d at 538 (quoting Zer-Ilan v. Frankford (In 

re CPDC, Inc.), 337 F.3d 436, 441 (5th Cir. 2003)). “Where there are two 

permissible views of the evidence, the factfinder’s choice between them cannot 

be clearly erroneous.” Jacobsen, 609 F.3d at 662 (quoting Anderson v. City of 

Bessemer City, 470 U.S. 564, 574 (1985)). In upholding a bankruptcy court’s 

finding of bad faith in the context of 11 U.S.C. § 1307, we have stated that “the 

bankruptcy court, sitting as the factfinder, ha[s] the ability to evaluate [the 

debtor’s] testimony and his credibility firsthand.” Id. 

As discussed above, § 349(b) states that property of the estate revests 

upon dismissal “[u]nless the court, for cause, orders otherwise.”11 “[R]ead in 

context, [§ 349(b)] appears designed to give courts the flexibility to ‘make the 

appropriate orders to protect rights acquired in reliance on the bankruptcy 

case.’” Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 984 (2017) (quoting

H.R. Rep. No. 95-595, at 338) (holding that a bankruptcy court lacks the 

authority, absent the consent of affected parties, to order a distribution scheme 

related to a Chapter 11 dismissal that skips the Bankruptcy Code’s “basic 

priority rules” for “final distributions of estate value in business 

bankruptcies”). The Bankruptcy Code does not appear to define what 

constitutes “cause” under § 349(b). In re Darden, 474 B.R. 1, 12 (Bankr. D. 

Mass. 2012). The Trustee argues that the Debtors acted in bad faith, engaged 

in dishonesty, and abused the bankruptcy process. We need not decide

whether a finding of “cause” under § 349(b) must be based on evidence of bad 

 

11 Moreover, we have held that a debtor’s right to voluntarily dismiss her case under 

§ 1307(b) is not absolute but is “subject to a limited exception for bad-faith conduct or abuse 

of the bankruptcy process.” Jacobsen, 609 F.3d at 649.

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faith or whether other considerations may also justify such a finding. This is 

because, considering the record, we are not “left with the definite and firm 

conviction” that the bankruptcy court erred in determining that there was no 

“cause” to order that the homestead proceeds be kept from the Debtors.12 See

Am. Hous. Found., 785 F.3d at 152. Indeed, this determination was not error—

clear or otherwise. 

Here, when the Debtors fell behind in plan payments, they proposed to 

surrender a vehicle in the hopes that this modification would allow them to 

successfully complete the plan. Later, the Debtors proposed remitting a lump 

sum of the net proceeds from the sale of their homestead (less Dolores Lopez’s 

medical costs related to her eye surgery) to help reduce the amount they owed 

in arrears. Rather than abusing the bankruptcy process, the Debtors 

apparently made payments under their plan for at least four years. They filed 

a motion to dismiss only after the bankruptcy court clearly stated that Dolores 

Lopez could voluntarily dismiss the case and receive all of the homestead 

proceeds as an alternative to discharge. Moreover, counsel for the Debtors

represented that Dolores Lopez had been using payments received on the 

wrap-around note from the sale of the homestead to make plan payments, thus 

benefitting creditors. It appears that she stopped making plan payments only 

when she was no longer receiving payments on the wrap-around note. These 

considerations undermine the idea that the Debtors acted in bad faith or 

abused the bankruptcy process and undercut the Trustee’s assertion that 

creditors would suffer inequity unless the Trustee distributes the homestead 

proceeds to them. 

 

12 While the Trustee faults the bankruptcy court for allegedly taking no evidence at 

the bankruptcy hearings, this argument saws the branch on which it sits. The argument 

that no evidence was taken undermines the assertion that evidence of “cause” existed at all.

 Case: 17-50297 Document: 00514579041 Page: 15 Date Filed: 07/31/2018
No. 17-50297

16

In addition, the Debtors’ exempt homestead (sold in 2011) was not

property of the estate13 and, prior to this court’s 2014 decision in Frost, the 

Debtors would not have been on notice that the homestead sale proceeds, 

unlike the homestead, would become part of the estate if not reinvested in 

another homestead within six months of the sale. This undermines the 

assertion that “cause” exists because the Debtors did not disclose the existence 

of the homestead proceeds when those proceeds first became part of the 

bankruptcy estate. Thus, on this record, the bankruptcy court did not err in 

determining that “cause” did not exist to keep the homestead proceeds from 

returning to the Debtors. 

IV.

Therefore, because the homestead proceeds vested in the Debtors upon 

dismissal of their Chapter 13 case and because the bankruptcy court did not 

err in finding no “cause” to order otherwise, the Trustee must return the 

homestead proceeds to the Debtors. Accordingly, we REVERSE the judgment 

of the district court as to the disbursement of the proceeds; AFFIRM the 

district court’s judgment regarding the Debtors’ motion to dismiss and the 

Trustee’s motion to modify; and REINSTATE the order of the bankruptcy court 

directing the Trustee to return the homestead proceeds to the Debtors. 

 

13 “Under Texas law, a debtor’s homestead is permanently exempted from the 

bankruptcy estate . . . .” Frost, 744 F.3d at 385. 

 Case: 17-50297 Document: 00514579041 Page: 16 Date Filed: 07/31/2018