F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

I N R E J A S O N S C O T T B R

O W N , Debtor

,

K E N N E T H B R

O W N , Appellant

,

v

.

C H R I S T O P H E R B A R

C L A Y , A ppellee. N o. 18-60029

B AP No. 17-1068

OPI NI ON

Appeal from the Ninth Circuit B ankruptcy

Appellate Panel Kurtz , Spraker, and Alston, B ankruptcy J udg es, Presiding

Arg u ed and Submitted November 7, 2019

Pasadena, California

F iled March 23, 2020

B efore: Mary

M. Schroeder, Michelle T. F riedland, and Ry an D. Nelson, Circuit J udg es.

Opinion by

J udg e SchroederI N R E B R O W N 2

SUMMARY *

Bankruptcy

The panel affirmed the bankruptcy court and the B ankruptcy A ppellate Panel ’ s ruling in favor o f a Chapter 7
trustee who contended that funds fraudulently transferred b y t h e d ebtor remained p roperty of the bankruptcy estate up o n conversion from Chapter 13 to Chapter 7.

Under 11 U.S.C. § 348(f)(1)(A), upon conversi o n from Chapter 13 to Chapter 7, the converted estate consists of the
assets that remain in the possession or control of the debtor at the time of conversion. Here, the debtor made unauthoriz ed and fraudulent transfers of funds during the Chapter 13 proceeding

. The panel held that, following conv ersion for

cause to Chapter 7, u

pon the b ankruptcy c ourt’s finding of the debtor’s b ad f

aith in making the transfers, the t r a n s f erred funds remained property of the Chapter 7 estate, which meant that the Chapter 7 trustee h ad authority to rec o v e r them. I nterpreting§ 348 in lig ht of the structure of the B ankruptcy Code as a whole, including its o bject a nd policy

, the panel held that, because the d ebtor t r an s ferred the funds with the fraudulent purpose of avoiding pay ments to creditor s, the funds remained within his c onstructive possession or c ontrol, and hence should be considered part of the converted estate.

* T h is su m m ary co n stitu

tes n o p art o f th e o pin io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.I N R E B R O W N 3

COUNSEL

Michael G. D oan (ar gu e d )

, D oan L aw F irm, Oceanside, California, for Appellant.

Yosina M. L issebeck (arg ued), L i s s e b e ck L aw, San Dieg o, California, for Appellee.

OP INION

SCHROEDER, Circuit J udg e:

OVERVIEW

W h en a bankruptcy pro c e eding is converted from a proceeding under Chapter 13 to a proceeding u nder Chapter 7, the contents of the Chapter 7 estate sho uld be easily ascertainable. Co ng ress therefore e nacted 1 1 U .S.C. § 348(f)(1)(A) to define the c onverted e state. I t provides that the converted estate c onsists of the assets in t h e C h apter 13
estate that remain in the possession o r control of the debtor at the time of conversion. 1

The pr o b l e m in this case beg an when the debtor made unauthoriz ed a

nd fraudulent transfers of funds during the Chapter 13 pro c e e d ing

. After the B ankruptcy Court converted the proceeding s to Chapter 7 i n response, the debtor arg ued that the transferred funds were no long er in the

1 S ectio n 3 4 8 (f

)(1 )(A ) p ro v id es “ p ro p erty o f th e estate in th e

c o n v erted case sh all co n sist o f p ro p erty o f th e estate, as o f th e d ate of f ilin g o f th e p etitio n , t ha t r e m a in s in th e p o ssessio n o f o r is u n der th e

co n tro l o f th e d eb to r o n

th e d ate o f

co n v ersio n .”I N R E B R O W N 4

estate. T he B ankruptcy Court and the B ankruptcy Appellate Panel (“B AP”) disag r eed, holding tha t, u nder the circumstances, the transferred funds should remain property of the Chapter 7 estat e, w h i ch would mean the Chapter 7
trustee had authority to recover them. Those courts, however,

came up with three d ifferent rationales for that result. W e ag ree that the funds should r emain p r operty of the estate, but

we must endeavor to harmoniz e that result with the lang uag e of § 348(f)(1) and the limited case law interpreting it.

The c ase arises out of a modest family inheritance. The debtor, J ason B rown, has three brothers, including Appellant Kenneth B rown. W hen their father d ied on J u ly 20, 2012, he left his estate to his four sons. I n the state court probate proceeding in Aug ust 2 013, each of t h e brothers abandoned their interests in the estate to J ason.

J ason then filed h is Chapter 13 bankrupt c y p e t ition on December 13, 2013 and filed his schedul e s and Chapter 13 plan on December 21. H e scheduled an anticipated inheritance of only $2,500. A few months after that, the state court distributed the net proceed s o f t he estate to J ason, an amount totaling $ 55,487.97. J ason a lmost immediately

, a nd without the approval o f the Chapter 1 3 trustee, transferred $12,372 to each of his brothers.

Upon learning of the unauthoriz ed transfers, the Chapter 13 trustee , a s a sanction, soug h t conversion pursuant to 11 U.S.C. § 1307(c). That section provides that u pon request of the trustee, the B ankrupt cy Court may convert a case to Chapter 7 for cause. The trustee alleg ed J ason had abused the bankruptcy sy stem by first failing to disclose the full amount of h is anticipated inheritance and then by transferring most o f that inheritance to his brothers who no long er had any claimI N R E B R O W N 5

to it. At the h earing on the Chapter 13 trustee’s motion, J ason offered no justification for either the lack of disclosure or the transfers. J ason also a cknowledg ed that he could n o t account for any of the money , including the f unds that he had retained after transferring equal shares to h is brothers. The Ba n k r uptcy Court o rdered the conversion to Chapter 7 for
cause, and, when J ason moved for reconsideration, made an

ex p ress f inding that J ason’s conduct had been in bad faith. T h e B a n k r u p t c y C o u r t e x p l a i n e d t h a t g i v e n t h e uncontradict ed evidence of concealment by J ason, a nd his failure t o provide an adequate ex planation for his a ctions, there wa s a m p le support for a bad faith finding without holding an additional h e a ring

. I t concluded that the transfers were made to avoid pay

ments to creditors.

The B ankruptcy Court then appointed Ap p e l lee Christopher B arclay as the Chapter 7 trus t e e

. The trustee moved to recover the funds from all four brothers, including Appellant Kenneth and debtor J ason. A ppellant’s position

was that the funds transferred to him w e r e n o t part of the bankruptcy estate after the conversion because they were no long er in the possession or control of the debtor, as required by § 3 4 8 (f)(1)(A). The B ankruptcy Court disag reed, a nd offered two different reasons why the funds remained p art o f the bankruptcy estate. F irst, the B ankruptcy Court ex p lained that because the trans fers were n ot for ordinary living

ex p enses permitted by

statute, but were made in bad faith to avoid creditors

, t h e y should be reg arded as property of the converted e s tate. Alternatively

, the B ankruptcy Court reasoned t h at because J a son’s estate h ad a c laim to r ecover the funds from the brothers, the funds could be s a id to have remained within his possession or control within the meaning of § 348 (f)(1)(A).I N R E B R O W N 6

The B AP majority ag reed with the B ankruptcy Court’s first rationale, holding that because the funds were not spent in g ood faith o n ordinary living ex p enses, they remained part of the converted estate. J udg e Spraker wrote a se p ar a te concurring opinion. I n his view, a claim to avoid the transfer of funds a ccrued to the Chapter 13 trustee before conversion, and that claim was unaffected by § 348(f)(1)(A).

I n his appeal to this court, A ppellant does n ot dispute the f i nding of bad faith but contends o nly that funds transf e r r e d
to him were no long er in the literal possession o r control o f his brother, the debtor J a son, at the time o f conversion, a nd h e n c e n o t recoverable as part of the Chapter 7 estate. The
trustee a rg ues, however, that the property defined b y § 348
must include fraudulently transferred f unds to prevent abuse of the sy stem. T his dispute thus c oncerns the interpretation of § 3 4 8 ( f)(1)(A), a provision that does not directly address the issue of fraudulent transfers. As in other cont e x t s , w e must interpret a p roblematic section of the B ankruptcy Code in lig ht of the structure of the Code as a whole, including its object and policy

. S

e e H a wkins v. Franchise Tax Bd.

, 769 F .3d 662, 666 (9th Cir. 2014) (citing Children’s Hosp. & Health Ctr. v. Belshe , 188 F

. 3d 1090, 1096 (9th Cir. 1999)).

D ISCUSSION

Section 3 48 comes into p lay when a bankruptcy proceeding is converted from Chapter 1 3 to Chapter 7

. W e therefore look first to the nature of each ty pe of proceeding

. Chapter 13 b ankruptcy is a voluntary pr o c e eding that allows a debtor to retain control over som e a s s e ts while the debtor repay s cre d itors o ver a three-to-five-y ear period. I n

e x c h ang e for retaining control of some assets, the prope r t yI N R E B R O W N 7

accumulated during the repay ment period becomes part of the bankrup t c y e state and is used to r epay creditors. See 1 1 U.S.C. § 1306(a)(1) (including in the Chapter 13 est a t e “all property

. . . that the debtor acquires after t he
commencement of the case bu t before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12”).

I n c on trast, Chapter 7 allows d ebtors to discharg e their

ex isting debts immediately with o u t a long -term pay ment plan. B ut in e x chang e, the debtor must relinquish control of and liquidate all ex isting assets. The Chapter 7 trustee is to sell the property o f the e state, 11 U.S.C. § 704(a)(1), and then distribute the pr o c eeds to the debtor’s creditors, 11 U .S.C. § 726. Unlike in Chapte r 1 3 p roceeding s, wag es or other
assets acquired by the debtor post-petition are not property o f the estate, and therefore creditors d o not have access to them. See H arris v. Viegelahn

, 135 S. Ct. 1 8 2 9, 1835 (2015) (“Thus, while a Chapter 7 debtor must forfeit virtually all his prepetition property , he is a ble to make a ‘ f

r e s h start’ b y shielding from creditors h is postpetition earning s a nd acquisitions.”).

An issue that a

r ises is how to define the c o n t e nts of the
estate that is converted fr o m C h a p t er 13 to Chapter 7. One option w ould be to apply Chapter 7 ’ s rule th a t a l l a ssets acquired after the filing of the initial petition are retained by the debtor and do n o t become part of the bankruptcy estate. This approach would bar creditors from obtaining assets that

were acquired by the debtor after the Chapter 13 p etition was filed. I n essence, this approach w ould put the debt o r where he w ould have been, h ad he f iled in Chapter 7 initially

. Apply ing Chapter 7’s rule upon conversion would the r e f ore allow the debtor to keep assets that w ere acquired after the initial voluntary

Chapter 13 petition was filed.I N R E B R O W N 8

Another approach woul d b e to apply Chapter 13’s rule that a sse t s a c q

uired after the petition is filed become part o f the e state. Thus, assets acquired after the Chapter 13 petition

was filed would, upon conversion to Chapter 7, become part of the converted estate. T his approach would g ive a debtor’s creditors, u

pon c onver s i o n t o Chapter 7
, access to all such

ass e t s

. S u ch an approach would put the debtor in a worse position than if the petiti o n h ad been filed in Chapter 7 initially

. Cong r ess tried to resolve the issue in § 348(f)(1)(A), which effectively adopted the Chapter 7 approach, b y defining the converted e state to ex clude assets acquired a fter the initial f

iling

. This provision limits the converted estate in
two way s. F irst, to avoid penaliz ing the debtor who initially
eng ag ed in voluntary bankruptcy under Chapter 13, Cong ress restricted the assets of the c o n verted estate to property “as o f the date of filing o f the [ voluntary ] petitio n

. ” 1 1 U .S.C. § 348(f)(1)(A). This means that, after conversion to Chapter 7, creditors are barred from r ecovering p r o p erty that was acquired by the debtor a fter filing t he Chapter 13 petition. See, e.g. , H

arris
, 135 S. Ct. at 1 837 (ho l d i n g that wag e s acquired b y the debtor after f iling f or Chapter 1 3 bankruptcy and not distributed a t the time of conversion, are not property of the converted estate under section 348(f)(1)(A)).

Second, and of immediate c o ncern here, Cong ress, in § 348(f)(1)(A), limited the property of the converted estate to include only property that “remains in the possession of o r is under the control of the debtor o n the d ate of conversion.” This was necessary in order to take into account the debtor’s ability to spend funds on ordinary living ex penses during the Chapter 13 proceeding

. See 11 U.S.C. §§ 1303, 1306(b); I n

r e Pisculli

, 426 B .R. 52, 6 6 (E.D.N.Y. 2010) (“[ T] he righ t sI N R E B R O W N 9

conferred by sections 1303 and 1306(b)

. . . p r o vide the Chapter 13 d ebtor with the implicit rig ht to use p roperty o f the estate for ordinary and n ecessary livin g e x penses, p r o vided such use is n ot in b ad faith.”). This se c o n d limitation prevents credi t o rs from seeking to recover funds that were lawfully spent d u r ing the Chapter 13 proceeding and therefore no long er property of the estate. S ee 1 40 Cong

. Rec. H10752-01 at *H10771 (1994).

This second limitation on the property of the conver t ed
estate h as g iven rise to pr o blems for the bankruptcy courts, when, a s here, there have been unlawful ex penditures during Chapter 13. See In re Salazar

, 465 B .R. 8 75, 878–79 (B .A.P. 9th Cir. 2 010) (“Courts have strug g led in a pply ing § 348(f)(1)(A).”) The primary issue that arises is whether creditors may g o after fun d s that are no long e r in the possession or control o f the debt o r , because they were transferred out of the Chapter 13 est a t e without proper authoriz ation.

Salazar w as the f

irst BAP case to g rapple with § 348(f)(1)(A). I n Salazar

, the iss u e w a s w hat to d o with
assets that, during the Chapter 13 p r o c e e ding

, c ame in a nd then went out for appropriate, b ut u n a u thoriz ed, ex penses. The debtors had received a tax re fu n d after they filed for Chapter 13 bankruptcy

. Id

. at 882. T he d ebtors proceeded to spend those funds “ in the normal course of living .” Id

. After conversion to C hapter 7, the trustee soug ht recovery o f the
tax r efunds that were a cquired by the debtors post-petition. The trustee arg ued that the tax refund should b e inc luded in the property of t h e c o nverted estate, because in the trustee’s view, the ta x r efunds should have been categ oriz e d a s p r o p erty of the Chapter 13 estate. Id

. at 877. B u t the B AP reasoned that, because the debtor spent the tax refunds onI N R E B R O W N 10

ordinary living ex penses, those funds sho u l d b e ex cluded from the converted es tate. Id

. at 882. Other bankruptcy

c ourts have ag reed that § 348(f)(1)(A) bars creditors f r o m recovering funds from the converted estate that were spent on ordinary living ex penses d u r i ng Chapter 13, even if those

ex p enses were unauthoriz ed. See, e.g. , In re Laflamme

, 397 B .R. 194, 205–06 (B ankr. D.N.H. 2008).

Conversely

, courts have g eneral l y allowed creditors to

recover fu nds where the debtor has fraudulently transferred those fu nds out of the Chapter 13 estate to avoid creditors without authoriz ation. Fo r e x ample, in Pisculli

, the debtor transferred to his wife and brother-in-law funds obtain e d from a truck sale that should have been used to repay the debtor’s creditors, and did so w ithout notify ing the Chapter 13 trustee. 426 B .R. at 57. The court r ea s oned that, b ecause those proceeds had not been spent on ordinary living ex penses, they should be included in the c o nverted estate. Id. at 6 6

. The
court ex p lained that, where the d ebtor surrepti t i o usly transferred funds out of the estate dur i n g Chapter 13, “the debtor should not be allowed to escap e t h e consequence [ o f that action]

. . . simply because the proceeding h a s been converted to a Chapter 7 case.” Id . at 65.

Su ch a r esult is even more compelling where, as h ere, conversion to Chapter 7 has been imposed as a sanction for fraudulent transfers. I n such cases, courts have observed that

a literal application of § 348(f ) ( 1 )(A) to treat a ssets transferred in bad faith w ithout authoriz atio n a s outside the
estate could lead to an absurd result, one rewarding bad faith. As the court in W

y ss v. Fob b e r ex plained, ex clusion of the fraudulently transferr ed funds from the converted estate would mean that “the very a ct which g e nerally would form the basis for the denial o r r evocation of discharg e, i.e.,I N R E B R O W N 11

disposition of property of the estate, would insulate the debtor from liability ” in the Chapter 7 p r oceeding

. 256 B .R. 268, 276 ( B ankr. E.D. Tenn. 2000); see also In re Grein
, 435 B .R. 695, 699 (B ankr. D. Colo. 2010) (including property in the converted estate, “in order to avoid an absurd result”).

W h ile the result that fraudulently transferred funds should be recoverable by creditors as part of the converted estate under section 348(f)(1)(A)—especially when conversion was imposed as a sanction for those f raudulent transfers—seems obvious, th e t e x t o f the statute is much less so. Perhaps for this reason, in this case, the B ankruptcy Court and members of the B AP articulated three different theories to ex plain h ow to reach that result. The B AP majority applied the test from Salazar and concluded that because the funds were not spent in g ood faith o n ordinary living ex penses, they remained part of the converted e state. Separately concurring

, J u dg e Spraker

ex p lained that, in his v iew, the funds were n ot part of the converted estate, but the rig h t to reco v e r those funds h ad accrued to the Chapter 13 trustee before c o n v e r s ion. He concluded that the r ig ht to recover was unaffected b y conversion to Chapter 7. The B ankruptcy Court had taken a slig htly different view, st ating that because debtor J ason’s
estate had a claim ag ainst his brothers, that claim was p art o f
t h e C h a p ter 13 estate and became property of the estate. Althoug h they disag reed on the s p e c ific rationale, the B AP majority

, J u d g e Spraker, and the B ankruptcy Court a ll ag reed that the fraudulently transfer r e d funds must be considered property of the estate after conversion to Chapter 7.

None of these rationales, h o w ever, directly address A ppellant’s main c ontention. That contention is th a t t h e d e f i n ition of the post conversion estate in § 348(f)(1)(A),
p r operty that “remains in the possession of or is under t h eI N R E B R O W N 12

control of the debtor,” d oes not include funds transferred out of the e s t at e , albeit fraudulently

. Althoug h the B AP majority ’s approach, t o include the fraudulent ex penditures a s part of the converted estate b e cause they were not spent on ordinary living ex penses, seems sensible, the statute does not say that. I t provides o nly that funds remaining within the possession or co n trol o f the debtor are part of the converted
estate. Appellant further arg ues that the B AP sho u l d h ave discussed t h e Supreme Court’s decision in Law v. Siegel

, 571 U.S. 415 (2014). There, the Court was considering a bankruptcy c ourt’s e quitable powers under 11 U .S.C. § 105(a). T he Court held that a b ankruptcy court cannot use such e quitable powers where doing so would “contravene specific statutory provisions” ex e m p ting certain property from the reach of c r e d i t o r s. S iegel

, 571 U.S. at 421. Appellant arg ues that the B ankruptcy Court a n d B AP

c o mmitted a similar error by using their equitable author i t y to override a

n ex press provision of t h e B ankruptcy Code. A p p e l lant contends that the B AP majority did not even attempt to ex plain h ow its result could be reconciled with the
tex t of § 348, and that they are in fact irreconcilable.

Appella nt further contends that J u dg e Spraker’s view is incompatible with the tex t of §348. J udg e Spraker’s conclusion that the Chapter 13 trustee’s claim to avoid the fraudulently transferred funds w as unaffected by conversion, Appellant arg u es, would make § 348(f)(1)(A)’s sep a r a t e definition of the converted estate superfluous.

The question we must answer here is whet h er the statutory provision, § 348(f)(1 ) (A )

, that defines p roperty o f the estate at the time of conversion, includes funds that were fraudulently transferred out o f the voluntary estate in o rder to

a v o i d c reditors. W e do not ag r ee with Appellant that t h eI N R E B R O W N 13

e x p ress p rovision of the Code provides a clear answer wit h respect to the issue of fraudulent transfers. To interpret what

we view as ambigu o u s tex t, we beg in by looking to the structure, object, and policies of the B ankruptcy Code. See Hawkins , 769 F .3d at 666.

The Code reflects a firm policy of not rewarding fraud o r bad-faith debtors—which it realiz e s in numerous provisions, including the structural relationship between Chapter 13 a nd Chapter 7. I n both Chapter 1 3 a n d C hapter 7 proceeding s, unauthoriz ed transfers of estate property by the debtor can be recovered by the trustee. See 1 1 U

. S

. C

. § 549(a). Under both, a delay of discharg e may b e o b t a ined where a debtor fraudulently t r ansfers funds. See 11 U.S.C. § 523(a)(2)(A). And the Code permits the b a n k r u p tcy court to order conversion to Chapter 7 when t h e d e btor fraudulently transfers funds during a voluntary b a n k ruptcy proceeding

. See 11 U .S.C. § 1307(c). Appellant conc e d e s t h a t had this

case r emained in Chapter 13, the trustee c ould have recovered those f unds. And if the case had b een f i l e d i nitially in Chapter 7, the trustee could have also recovered the funds.

There is thus no basis in the structure, policy

, or purpose of the B ankruptcy Code f or treating the fraudulent transfers

as bey ond the reach of the creditors merely because the estate

was converted. The only arg ument otherwise is that Cong ress used lang uag e that seeming ly re quires actual possession o r control, despite the injustice o f the result

. Fo r the reasons that follow, we disag ree with that statutory interpretation.

To a ssist us in o ur interpr etation of the tex t, we look to other situations in which courts ex amining statutes requiring
p ossession have recog n iz ed that an interpretation requiring actual phy sical possession could lead to unfair or untowardI N R E B R O W N 14

results. I n such situations, w hich arise principally in criminal
contex ts, courts have adopted a broader interpretation o f “possession.” E x a m ples a re statutes penaliz ing the possession o f c ontraband a nd s t atutes penaliz ing laundering of money that has been in the defendant’s possession. Courts have utili z e d t he c oncept of “constructive” control o r possession, w hereby an individual is deemed to possess items

even w hen the individual do e s not a ctually have immediate ph y sical possession of the item. See, e.g. , U nited States v

. Vasquez , 654 F .3d 880, 885–86 (9th Cir. 2011).

The possession of a c ontrolled substance is a crime under

our drug laws. See
, e.g. , 21 U .S.C. § 841(a)(1) (“[ I ] t shall be

u n l a wf u l for any person knowing ly o r intentionally to

. . . possess

. . . a contro l l e d s ubstance”). W hen defendants ch ar ged with violating this and similar statutes have a rg u ed that actual phy sical possession of the contraband is required,

c o urts have rejected the arg ument, ex plaining that a demonstration of c onstructive possessio n o r control of the contraband is sufficient. See, e.g. , United St ates v. Disla

, 805 F .2d 1340, 1350 (9th Cir. 1986) (obs e r v i n g that “[ w] e have upheld many convictions [ u nder § 841(a)(1)] under the theory of constructive possess i o n”); United States v. Ruiz
, 462 F .3d 108 2
, 1088 (9th Cir. 2006) ( “ [ W ] e have defined possession as having actual or constructive control.”).

W ith respect to money laundering

, the criminal st atute penaliz es the transfer of unlawfully obtained proceeds. 18 U.S.C. § 1957( f

) ( 2 ) (defining “criminally derived property ” as “any property constituting

, or deriv e d from, proceeds obtained from a criminal offense”). Cour ts have held that to show that a defendant “obtained” proceeds, there
must be a demonstration of possession or control. See United States v. P iervinazi
, 23 F .3d 670, 677 (2d C i r. 1994).I N R E B R O W N 15

Defendants charg ed under this statute h a v e arg ued that if a defendant merely directed a transfer of proceeds w ithout ever placing the funds in the defendant’s own ac count, that defendant “neither p ossessed nor controlled the[ ] funds” a nd therefore could not be the subject of the money laund e ri ng charg es. U

nited States v. Smith

, 44 F .3d 1259, 1265–66 (4th Cir

. 1 9 95). B ut courts have concluded that constructive control of fraudulently obtained funds is s u fficient and may be inferred where transfers are made pursuant to a scheme o f fraud that the d efendant p articipated in o r directed. See id. at 1266; United States v. P rince
, 2 14 F .3d 740, 7 4 8 (6th Cir. 2000) ( h o l d ing that the defendant “did not need to have
p h y sical possession o f the money b efore it c oul d b e considered p r o c e eds”); United S tates v. Howard

, 271 F

. Supp. 2d 79, 83 n.4 (D.D.C. 2002) (ex plaining that “the defendant need not be in actual possession of the proceeds of the funds derived from the specified unlawful a ctiv i t y ; constructive control of the funds is sufficient”)

. According ly

, p ro ce eds from money laundering m a y b e within the defendant’s constructive control or possession, eve n t houg h the funds

were never placed in the d efendant’s account. S mith

, 44 F .3d at 1266.

The situation in this case is parallel. Th e debtor J ason transferred t h e funds out o f h is actual possession to a close family member, in an effort to a void pay ments to his creditors that w ould have otherwise been r equired un d er the B ankruptcy Code. I n a

nalog ous criminal contex ts, courts have consistently rejected efforts to evade the operation of the law by d isg uising ownership o f fraudulently obtained funds

or contraband. See, e.g. , Henderson v. United States
, 135 S. Ct. 1780, 1785 (2015) (ex p l a i n ing that a defendant “cannot evade the strictures of [ the statute] by arrang ing a shamI N R E B R O W N 16

t r a n s fer that leaves him in effective control of” t h e contraband). W e apply

the same approach here.

I t is undisputed that the debtor J ason was try ing to avoid the operation of the B a

n kruptcy Code when he transferred the funds to close r elativ e s without first notify ing either the B ankruptcy Court or the Chapter 13 trustee. Had there been

a dispute as to h i s i ntent, we believe that an unauthoriz ed
tr a n sfer would at least g ive rise to a rebuttable presumption that funds remained within the debtor’s possession or c ontrol. I n this case, however, the B ankruptcy Court found, and it has

never been disputed on appeal, that the debtor transferred the funds with the fraudulent purpos e o f avoiding pay ments to

c r e d i t ors. The brothers may , f or ex ample, have intended t o g ive the money back to the debtor J ason after the bankruptcy

was over. W e therefore ho l d t h a t those funds remained within his constructive possessio n or control, and hence should be considered property of the converte d estate under § 348(f)(1)(A).

AF F IRMED

.