In the

United States Court of Appeals

For the Seventh Circuit

No. 07-1850

IN RE:

MICHAEL W. WILLETT and KARIN J. WILLETT,

Debtors-Appellees,

APPEAL OF:

NATIONAL CAPITAL MANAGEMENT, LLC

Appeal from the United States District Court 

for the Southern District of Indiana, Evansville Division.

No. 06 C 177—Richard L. Young, Judge.

ARGUED JANUARY 23, 2008—DECIDED SEPTEMBER 12, 2008

Before MANION, ROVNER, and EVANS, Circuit Judges.

MANION, Circuit Judge. Michael and Karin Willett

filed for relief under Chapter 13 of the bankruptcy code.

During the pendency of their case, they successfully

moved to avoid a lien on their residence held by a judgment creditor. The creditor appealed to the district court

arguing that the bankruptcy court had incorrectly valued

the property, resulting in the erroneous conclusion that
2 No. 07-1850

the lien would impair a $15,000 exemption to which

the Willetts were entitled under Indiana law. The district

court affirmed the bankruptcy court. The creditor appeals

making the same argument, and we reverse the district

court.

I.

The facts material to our disposition of this appeal are

undisputed. The Willetts purchased a 1995 Chrysler

Sebring on August 12, 1998, financed through American

Investment Bank (“AIB”). AIB repossessed the vehicle in

February 2000 claiming that the Willetts failed to make

their payments. The Willetts responded by filing a suit in

the Vanderburgh County, Indiana Superior Court against

AIB for wrongful repossession, and AIB counterclaimed

for the remaining amount the Willetts owed for the car.

On August 14, 2003, the jury returned a verdict in favor

of AIB in the amount of $8,205. Under Indiana law, this

judgment gave AIB a judgment lien on real estate

owned by the Willetts. See Ind. Code § 34-55-9-2.

On January 29, 2004, the Willetts filed a joint petition

for Chapter 13 bankruptcy relief. At the time they filed

their petition, the Willetts held a remainder interest in

their primary residence located in Evansville, Indiana.

Their interest was encumbered by a life estate interest

held by Karin Willett’s mother, Wanda Garrison. The
No. 07-1850 3

There is a discrepancy in the record regarding whether the 1

Willetts’ subordinate, encumbered interest in the Evansville

property was valued at $65,000, or whether the property itself

had a fair market value of $65,000. For our analysis, we employ

the values used by the district court and those that have support in the record. However, we express no opinion on the

correct values that should be attributed to the Willetts’ interest

in the Evansville property upon filing their petition, or at any

later date. Our consideration here extends only to the legal

question of when those valuations should be made under the

bankruptcy code.

Willetts’ interest in the property was valued at $65,000 and 1

was subject to a $57,841.92 mortgage. As a miscellaneous

provision of their petition, the Willetts moved “to avoid

any lien asserted by the American Investors Bank with

respect to a 1995 Sebring automobile.” On March 25, 2004,

the bankruptcy court entered an order in which it confirmed the Willetts’ Trustee-approved proposed relief

plan. The bankruptcy court also noted that AIB held a lien

on the Willetts’ Sebring and funds on deposit with the

Vanderburgh County Clerk. It stated that this lien would

“be avoided by separate motion.”

The Willetts did not move to avoid AIB’s lien until

almost two years later on January 5, 2006. Two important

developments occurred in the interim. First, AIB transferred its right, title, and interest in the lien on the Willetts’

property to National Capital Management, LLC (“NCM”),

the appellant herein. Second, by means of a quit-claim

deed recorded on December 21, 2005, Wanda Garrison

released her interest in the Evansville property, thereby
4 No. 07-1850

granting the Willetts a fee simple interest. The value of

the fee simple interest in December 2005 was determined

to be $95,000. However, when the Willetts moved on

January 5, 2006, to avoid the lien, they cited the earlier

valuation of $65,000.

The basis for the Willetts’ motion to avoid the lien was 11

U.S.C. § 522, entitled “Exemptions,” which provides that

“the debtor may avoid the fixing of a lien on an interest

of the debtor in property to the extent that such lien

impairs an exemption to which the debtor would have

been entitled . . . if such lien is . . . a judicial lien . . . .” 11

U.S.C. § 522(f)(1)(A). The bankruptcy code continues

a lien shall be considered to impair an exemption to the

extent that the sum of—

(i) the lien;

(ii) all other liens on the property; and

(iii) the amount of the exemption that the debtor

could claim if there were no liens on the property;

exceeds the value that the debtor’s interest in the

property would have in the absence of any liens.

11 U.S.C. § 522(f)(2)(A). Therefore, to avoid impairing the

exemption, the remaining value had to exceed the amount

of the exemption (in this case, $15,000) plus all liens on

the property.

The importance of assigning a correct value to the

Willetts’ interest in the Evansville property becomes clear

once the amounts relevant under § 522 are totaled. NCM

held a lien in the amount of $8,205, and the only other
No. 07-1850 5

relevant lien was the mortgage on their residence for

$57,841.92. The Willetts were entitled under Indiana law

to claim a homestead exemption, and at the time they

filed their petition that exemption stood at $7,500 each. See

Ind. Code § 34-55-10-2(b)(1) (1999). Having filed their

petition jointly, the Willetts were each entitled to claim

the homestead exemption, for a total of $15,000. See id.

The exemptions plus the liens total $81,046.92. If the

valuation is set at $65,000, the liens and the exemptions

exceed it by $16,046.92. Under that formula, NCM’s

lien would therefore impair the Willetts’ homestead

exemption under § 522(f)(2)(A) entitling the Willetts to

avoid that lien under § 522(f)(1)(A). However, if the

property valuation is set at $95,000, the value exceeds the

liens plus the Willetts’ exemptions by $13,953.08. Therefore, if the higher valuation is used, NCM’s lien does

not impair the Willetts’ exemption, and they may not

avoid it under § 522.

On September 27, 2006, the bankruptcy court granted

the Willetts’ motion to avoid NCM’s lien. The court listed

the value of the Evansville property at $65,000, and concluded that NCM’s lien impairs the exemption. NCM

appealed the bankruptcy court’s decision to the district

court. The district court concluded that the relevant

provisions of the bankruptcy code did not lead to a clear

conclusion regarding valuation of the Evansville property.

It therefore sought to discern the legislative intent behind

those provisions from sources outside the statute. As a

result of this analysis, the district court affirmed the

bankruptcy court. NCM appeals.
6 No. 07-1850

Section 541 does not expressly mention the filing of a joint 2

voluntary petition, but refers instead to “[t]he commencement

of a case under section 301 [or] 302 . . . .” 11 U.S.C. § 541(a). 11

U.S.C. § 301 allows for the filing of a voluntary petition, and 11

U.S.C. § 302 allows for the joint filing of a single petition

by spouses.

II.

We are presented with the narrow question of when

a bankruptcy court should value a Chapter 13 debtor’s

interest in real property for the purposes of a motion to

avoid a lien made pursuant to 11 U.S.C. § 522. As seen

from the facts above, we consider this question in the

specific context of debtors who had a limited interest in

the real property in question when they filed their petition for relief, and then obtained a greater interest in

the property (here, a fee simple interest in the whole) while

the estate was still open and prior to filing the motion

to avoid the lien related to the automobile that had attached to the real estate. Because the appeal turns on

construction of the bankruptcy code, it presents a question

of law which we review de novo. Vill. of San Jose v.

McWilliams, 284 F.3d 785, 790 (7th Cir. 2002). We begin

with 11 U.S.C. § 541, which sets forth the fundamental

principle that when debtors file a joint voluntary petition2

like the one filed by the Willetts, an estate in bankruptcy

is created. 11 U.S.C. § 541(a). Section 541 continues by

listing the properties that comprise that estate. 11 U.S.C.

§ 541(a)(1)-(7). The first type of property listed, and the

only one discussed by the district court, is “all legal or

equitable interests of the debtor in property at the com-
No. 07-1850 7

Section 541(a)(7) refers to interests acquired by the “estate” 3

while § 541(a)(1) speaks of interests held by the “debtor.” The

code makes this distinction because different chapters of the

bankruptcy code treat property acquired after commencement

of the case differently. For example, not all property acquired by

a debtor becomes part of the estate in proceedings under

Chapter 7. See, e.g., DeLeon v. Comcar Industs., Inc., 321 F.3d 1289,

1291 (11th Cir. 2003) (noting that Chapter 13 allows for the

inclusion of after-acquired property in the bankruptcy estate

while Chapter 7 does not). However, section 541(a)(7) is applicable here because in Chapter 13 proceedings, after-acquired

property becomes part of the estate if acquired while the

estate is still open. See 11 U.S.C. § 1306(a)(1).

mencement of the case.” 11 U.S.C. § 541(a)(1). However,

§ 541 also lists “[a]ny interest in property that the estate

acquires after the commencement of the case.” 11 U.S.C.

§ 541(a)(7).3

The bankruptcy code gives additional treatment to the

subject of property acquired by debtors after the commencement of a Chapter 13 case, providing, “[p]roperty

of the estate includes, in addition to the property specified

in section 541 of this title . . . all property . . . that the debtor

acquires after the commencement of the case but before

the case is closed . . . .” 11 U.S.C. § 1306(a)(1). See In re

Drew, 325 B.R. 765, 770 (Bankr. N.D. Ill. 2005) (“Thus,

property that a Chapter 13 debtor acquires post-petition . . .

becomes property of the estate pursuant to § 1306, in

contrast to the post-petition acquisitions that do not

become part of a Chapter 7 or Chapter 11 estate.”). Finally,

§ 522, the section under which the Willetts moved to
8 No. 07-1850

avoid NCM’s lien, sets forth how to value property, and

when that valuation should take place. It states, “ ‘value’

means fair market value as of the date of the filing of the

petition or, with respect to property that becomes property of the estate after such date, as of the date such

property becomes property of the estate.” 11 U.S.C.

522(a)(2).

After reviewing all of these provisions except § 541(a)(7),

the district court found that there was no definitive answer

determining when the Evansville property should

be valued. First, it noted that under § 541(a)(1), the remainder interest held by the Willetts when they filed their

petition was property of the estate. Under § 522(a)(2), that

estate property would be valued at $65,000, the fair

market value of their remainder interest when the petition was filed. The court then noted that pursuant to

§ 1306(a)(1), the fee simple interest acquired in December 2005 would be considered property of the estate even

though it was acquired after commencement of the

Willetts’ case. Under to the second part of § 522(a)(2), the

fee simple would be valued at $95,000, its fair market

value as of the date it became part of the estate. The court

concluded that these provisions did not provide a clear

answer to the valuation question, stating that “[a] plain

reading of the statutes treats the [Evansville] Property

as both property of the estate at the petition filing date

and after-acquired property.” It then attempted to discern the legislative intent behind the provisions by referencing sources outside the bankruptcy code. Citing the

principle that the bankruptcy code’s purpose “is to grant

a fresh start to the honest but unfortunate debtor,”
No. 07-1850 9

Marrama v. Citizens Bank of Mass., 127 S. Ct. 1105, 1107

(2007) (quotation omitted), the district court concluded

that the “Debtors’ interest in the [Evansville] Property

should be valued as of bankruptcy petition filing date.”

The district court prematurely moved away from the

bankruptcy code. The statutes do not treat the Evansville

property as property of the estate at the time of filing, at

a later date, or at any time at all. While the bankruptcy

code does enable debtors to get a “fresh start,” the debtors

first have to comply with all of the provisions of

that comprehensive code. And a plain reading of the

applicable statutes does provide a “definitive answer to

the dispute in this case.” Section 541, in setting forth

what constitutes “property,” refers to the legal interest a

debtor has in property, not the property itself. 11 U.S.C.

§ 541(a)(1) and (7). Imprecise use of the word “property”

may cause some confusion since it can be used to refer to

the interest held by a debtor, see, e.g., 11 U.S.C. §§ 522(a)(2)

and 541(a)(1), or the item (e.g., piece of real estate) in

which the debtor holds that interest. However, the focus

of the provisions referenced above is on “interests” held

by debtors and estates. The Willetts held a remainder

interest in the Evansville property when they filed their

petition, and they later acquired a full fee simple interest while the estate was still open. The code provides

that these interest should have been valued at the time

each became part of the estate. Here, the debtors acquired

an increased interest in the same real estate which was

valued at $95,000 before the estate was closed.

The fact that the Willetts’ interest in the Evansville

property increased during the pendency of their case does
10 No. 07-1850

The district court cites to four bankruptcy cases stating that 4

the proper time to value property for a lien avoidance analysis

is the time the petition was filed. See In re Vokac, 273 B.R. 553,

556-57 (Bankr. N.D. Ill. 2002); In re Schmidt, 2000 WL 33950749,

* 1 (Bankr. C. D. Ill. 2000); In re VanZant, 210 B.R. 1011, 1014

(Bankr. S.D. Ill. 1997); and In re Girard, 98 B.R. 685, 688 (Bankr.

D. Vt. 1989). However, VanZant and Girard were filed under

(continued...)

not present a situation outside the express scope of the

bankruptcy code. Courts are obliged to read statutory

provisions at issue in such a way as to avoid a conflict

between them if such a construction is possible and

reasonable. Precision Industs., Inc. v. Qualitech Steele SBQ,

LLC, 327 F.3d 537, 544 (7th Cir. 2003). This can be accomplished here because the portions of § 522 and § 541

addressing property held by debtors when they file their

petition are applicable to every petition filed. They allow

for identification of the estate’s property, as well as the

valuation of that property should the debtor elect to seek

an exemption. In cases where a debtor acquires

property after commencement of the action, the portions

of § 522, § 541, and § 1306 concerning after-acquired

property dictate what becomes property of the estate,

and how it is valued. This reading of the code avoids

rendering the after-acquired property provisions of § 522,

§ 541, and § 1306 meaningless. See United States v. Miscellaneous Firearms, Explosives, Destructive Devices, and Ammunition, 376 F.3d 709, 712 (7th Cir. 2004) (noting that statutory provisions should not be construed in a way that

renders other provisions of the same statute inconsistent,

meaningless, or superfluous).4
No. 07-1850 11

(...continued) 4

Chapter 7. Therefore, § 1306(a)(1), important to our conclusion

here, was not applicable in those cases. See 11 U.S.C. § 103(i)

(“Chapter 13 of this title applies only in a case under such

chapter.”). Also, none of the cases dealt with a debtor who

acquired a different interest in the property at issue following

initiation of the case.

We decline to reach a number of issues raised by the Willetts 5

in their brief including the evidentiary basis for the $95,000

(continued...)

Applying these principles to the matter before us, the

Willetts’ case remained governed by the provisions

covering property held by the debtors at the commencement of their action until December 21, 2005. On that date,

their interest in the Evansville property, property belonging to the estate under § 541, changed from a remainder

interest valued at $65,000, the fair market value when

they filed their petition, to a fee simple interest valued at

$95,000, the fair market value as of the date the property

became part of the estate. See 11 U.S.C. § 522(a)(2). The

bankruptcy code therefore provided all the guidance

necessary regarding Congress’s intent in handling situations like the one presented here, and there was no need

to look further. See Zedan v. Habash, 529 F.3d 398, 405 (7th

Cir. 2008) (noting that “as long as the statutory scheme

is coherent and consistent, there generally is no need for

a court to inquire beyond the plain language of the statute”). The district court’s conclusion that the Evansville

property should be valued based upon the interest

held by the Willetts when they filed their petition was

erroneous.5
12 No. 07-1850

(...continued) 5

value, NCM’s failure to appeal the bankruptcy court’s confirmation order, and whether NCM was entitled attorneys’ fees. In

addition to being irrelevant to the narrow statutory issue

considered by the district court and presented to us on appeal,

these arguments were not raised before the district court, and

may not be raised here for the first time. See Domka v.

Portage County, Wis., 523 F.3d 776, 783 n. 11 (7th Cir. 2008).

9-12-08

III.

When the Willetts moved to avoid NCM’s lien, their

interest in the Evansville property should have been

valued at the fair market value of their fee simple interest

at the time it was recorded on December 21, 2005. Accordingly, the district court is REVERSED and the case is

REMANDED for further proceedings consistent with this

opinion.