1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FILED

MAR 12 2014

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT 

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NC-13-1339-JuKiD

)

ARA MARKOSIAN and ANAIT ) Bk. No. 09-50778-ASW

MARKOSIAN, )

)

Debtors. )

______________________________)

)

CAROL W. WU, Trustee, )

)

 Appellant, )

)

v. ) O P I N I O N 

)

ARA MARKOSIAN and ANAIT )

MARKOSIAN, )

)

 Appellees. )

______________________________)

Argued and Submitted on February 20, 2014

at San Francisco, California 

Filed - March 12, 2014

Appeal from the United States Bankruptcy Court

for the Northern District of California

Honorable Arthur S. Weissbrodt, Bankruptcy Judge, Presiding

_________________________

Appearances: Johnson C.W. Lee, Esq., argued for appellant

Carol W. Wu, Chapter 7 trustee; Drew Henwood,

Esq., argued for appellees Ara and Anait

Markosian.

_________________________

Before: JURY, KIRSCHER, and DUNN, Bankruptcy Judges.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

JURY, Bankruptcy Judge:

Ara and Anait Markosian (collectively, Debtors) filed a

chapter 71

 petition which they converted to chapter 11 and then

reconverted to chapter 7. After reconversion to chapter 7, Mr.

Markosian received a bonus from his employer of over $102,000

for services rendered while the chapter 11 case was pending. 

Debtors turned over the bonus to appellant, Carol W. Wu, the

chapter 7 trustee, and filed a motion to compel the trustee to

return it to Debtors. The bankruptcy court granted Debtors’

motion, finding that although the bonus constituted earnings and

were property of Debtors’ chapter 11 estate under § 1115(a)(2),

the bonus reverted to them upon conversion of Debtors’ case to

chapter 7. This appeal followed. 

 We address an issue of first impression in this Circuit: 

whether an individual debtor’s chapter 11 postpetition earnings

which are property of the estate under § 1115 revert to him or

her upon a subsequent conversion to chapter 7. As a matter of

statutory interpretation, we conclude that they do and AFFIRM. 

 I. FACTS

On February 7, 2009, Debtors filed a chapter 7 petition. 

The United States Trustee moved to dismiss their case for abuse

based on Debtors’ high income and their ability to pay their

creditors. In response, Debtors converted their case to chapter

1

 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 

“Rule” references are to the Federal Rules of Bankruptcy

Procedure.

-2-
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11 on February 11, 2010. More than two years later, Debtors

were unable to confirm a plan because Mrs. Markosian had lost

her job. Debtors reconverted their case to chapter 7 on March

5, 2012. 

In April 2012, Mr. Markosian received $102,498.421 from his

employer for personal services provided while Debtors’ case was

still under chapter 11. Debtors turned over the bonus to the

trustee and subsequently filed a motion to determine their

interest in it. The bankruptcy court denied Debtors’ motion

without prejudice in order for Debtors to file a new motion to

address whether the bonus was property of their chapter 11

estate pursuant to § 1115(a)(2), and if so, whether it

subsequently became property of their chapter 7 estate.

Debtors then filed a motion to compel trustee to return the

bonus to them as either partially exempted property of the

bankruptcy estate or as property excluded from the chapter 7

estate upon reconversion to chapter 7. Trustee opposed. 

On January 18, 2013, the bankruptcy court heard the matter, 

directed the parties to file supplemental briefs and took the

matter under advisement. In June 2013, the bankruptcy court

issued its memorandum decision. The court found that the bonus

constituted earnings from personal services within the meaning

of § 1115(a)(2), but concluded that it ceased to be property of

1 Mr. Markosian actually received a gross bonus of

$191,191.00. However, statutory reductions reduced the total

bonus by $72,931.21, and trustee discovered during litigation

over the rights to the bonus that Mr. Markosian had used some of

it to purchase company stock worth $15,761.37, which remains in

his possession or has since been sold. 

-3-
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

the estate upon conversion to chapter 7 based on the reasoning

set forth in In re Evans, 464 B.R. 429, 438-41 (Bankr. D. Col.

2011). Because the court found that the bonus was not property

of the chapter 7 estate, it did not reach the question whether

the money could be claimed exempt. The bankruptcy court entered

an order granting Debtors’ motion to compel on July 2, 2013. 

Trustee timely appealed.

 II. JURISDICTION

The bankruptcy court had jurisdiction over this proceeding

under 28 U.S.C. §§ 1334 and 157(b)(2)(A). We have jurisdiction

under 28 U.S.C. § 158. 

III. ISSUE

Whether the bankruptcy court erred by finding that the 

bonus, which was property of Debtors’ chapter 11 estate under

§ 1115(a)(2), reverted to Debtors upon conversion to chapter 7. 

IV. STANDARD OF REVIEW

We review issues of statutory construction and conclusions

of law, including the bankruptcy court’s interpretation of the

Bankruptcy Code, de novo. Samson v. W. Capital Partners, LLC

(In re Blixseth), 684 F.3d 865, 869 (9th Cir. 2012).

V. DISCUSSION

As with all statutory construction issues, we start with

the statutory language. We begin by looking at § 541 which

defines property of the estate. Under § 541(a), the

commencement of a case under the Bankruptcy Code creates an

estate. Although the estate may acquire property after the

commencement of the case, see § 541(a)(6) and (7), estate

property remains distinct from the debtor’s property. See Smith

-4-
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

v. Kennedy (In re Smith), 235 F.3d 472, 478 (9th Cir. 2000). 

Under § 541(a)(6), “earnings from services performed by an

individual debtor after the commencement of the case” are the

debtor’s property which are excluded from property of the

estate. 

In 2005, the Bankruptcy Abuse Prevention and Consumer

Protection Act added § 11152 which, similar to §§ 1306 and 1207,

adds an individual debtor’s postpetition earnings to property of

the chapter 11 estate. The bankruptcy court found that the

bonus received by Mr. Markosian post-conversion was property of

Debtors’ chapter 11 estate under § 1115(a)(2), a ruling not

challenged in this appeal. However, § 1115 does not apply upon

conversion from chapter 11 to chapter 7. Instead, § 348 governs

the effect of a conversion. 

Although § 348(f)(1)(A) expressly excludes a debtor’s

postpetition earnings from property of a chapter 7 estate upon

conversion from chapter 13 — earnings that are included in the

chapter 13 estate under § 1306(a)(2) — there is no parallel

provision for chapter 11 debtors. In the absence of a specific

2

 Section 1115 provides in relevant part:

(a) In a case in which the debtor is an individual,

property of the estate includes, in addition to the

property specified in section 541--

. . . .

(2) earnings from services performed by the

debtor after the commencement of the case but

before the case is closed, dismissed, or

converted to a case under chapter 7, 12, or

13, whichever occurs first. 

-5-
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

statutory provision, we rely on § 348(a), which by its plain

language applies to all cases under Title 11, not just certain

ones: 

(a) Conversion of a case from a case under one chapter

of this title to a case under another chapter of this

title constitutes an order for relief under the

chapter to which the case is converted, but, except as

provided in subsections (b) and (c) of this section,

does not effect a change in the date of the filing of

the petition, the commencement of the case, or the

order for relief.

The statute expressly states that the date of the petition

remains unchanged. “Where a case is converted from Chapter 11

to Chapter 7, property of the estate is determined by the filing

date of the Chapter 11 petition, and not by the conversion

date.” Magallanes v. Williams (In re Magallanes), 96 B.R. 253,

255 (9th Cir. BAP 1988). As of the petition date, § 541(a)(6)

excludes from the chapter 7 estate earnings from services

performed by individual debtors after the commencement of the

case. Therefore, by operation of § 348(a), personal service

income that came into Debtors’ chapter 11 estate is

recharacterized as property of the debtor under § 541(a)(6)3

3

 To the extent trustee contends that the postpetition

earnings of Mr. Markosian are property of the chapter 7 estate by

operation of § 541(a)(7), we reject that argument. Section

541(a)(7) makes property of the estate any interest in property

that the estate (not the debtor) acquires after the case. Here,

the bankruptcy court found that the bonus constituted earnings

from personal services of Mr. Markosian under § 1115(a)(2) and

that ruling was not appealed. Thus, the earnings fall within the

earnings exception stated in § 541(a)(6). We note however that

there may be chapter 11 cases which are converted to chapter 7

where it is necessary to separate earnings from personal services

by an individual from the earnings of a business. See

(continued...)

-6-
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

when the case is converted to chapter 7. Accordingly, upon

conversion, the bonus reverted to Debtors. 

While other courts have come to a different conclusion, we

respectfully disagree with their method of statutory

interpretation. See Pergament v. Pagano (In re Tolkin), 2011 WL

1302191 (Bankr. E.D.N.Y. 2011); In re Hoyle, 2013 WL 3294273

(Bankr. D. Idaho 2013) (following Tolkin). In essence, they

rely on Congress’s failure to enact a parallel provision to

§ 348(f)(1)(A) for chapter 11 debtors. The Tolkin court opined:

The language of [§ 1115] parallels the language of

§ 1306, and accomplishes the same goal of broadening

the scope of property of the debtor’s estate

significantly beyond the parameters of § 541. 

However, unlike in a Chapter 13 case, there is no

provision similar to § 348(f) to modify the result

upon conversion of a Chapter 11 case to another

chapter. In re Quillen, 408 B.R. 601, 620 n.33 [Bankr.

D. Md. 2009)] (“. . . Section 1115 . . . is identical

to Section 1306. Curiously though, no counterpart to

Section 348(f) was codified in BAPCPA to

correspondingly adjust the reach of Section 1115.”). 

Therefore, what is captured as property of the

debtor’s estate under § 1115 remains as property of

the estate, even after the conversion of the case to

another chapter.

In re Tolkin, 2011 WL 1302191, at *10. Following Tolkin, the

court in Hoyle concluded that, “in light of the omission of a

provision equivalent to § 348(f)(1) applicable to the converted

chapter 11 case, Debtor’s arguments that the DIP accounts at

conversion are not ‘property of the estate’ does [sic] not

3(...continued)

FitzSimmons v. Walsh (In re FitzSimmons), 725 F.2d 1208, 1211

(9th Cir. 1984) (holding that only the debtor’s earnings from his

own personal services were exempt under 541(a)(6) as opposed to

all profits generated by his law practice). 

-7-
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

hold.” In re Hoyle, 2013 WL 3294273, at *7. 

To be sure, nowhere does the Tolkin court mention § 348(a),

instead relying on Congress’s failure to enact a provision

parallel to § 348(f)(1)(A) for chapter 11 debtors. Under this

interpretation, § 348(a) has no independent effect despite the

statute’s plain language that makes it applicable to all case

conversions, including those from chapter 11 to chapter 7. See

Aluminum Co. of Am. v. Bonneville Power Admin., 903 F.2d 585,

590 (9th Cir. 1990) (under statutory rules of construction, one

provision of a statute should not be interpreted in a way which

is internally contradictory or that renders other provisions of

the same statute inconsistent or meaningless).

 Further, the Ninth Circuit has cautioned that attempting

“to divine congressional intent from congressional silence” is

“an enterprise of limited utility that offers a fragile

foundation for statutory interpretation.” Polar Bear Prods.,

Inc. v. Timex Corp., 384 F.3d 700, 717 (9th Cir. 2004). Rather

than creating a rule out of silence, we consider § 348(f)(1)(A)

in context. In this regard, Congress amended § 348 in 1994 to

add subsection (f)(1)(A) well before it enacted § 1115. The

legislative history of § 348(f)(1)(A) shows that an amendment

was needed to resolve a split among courts concerning whether a

chapter 13 debtor’s postpetition earnings remained property of

the estate upon conversion to chapter 7. In re Evans, 464 B.R.

at 439 (citing cases and legislative history of § 348(f)(1)(A)). 

Given the reason for the amendment, the fact that Congress did

not enact a parallel provision to § 348(f)(1)(A) for chapter 11

debtors when it enacted § 1115 holds little, if any,

-8-
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

significance because there was no split of authority yet to

resolve. See Brown v. Gardner, 513 U.S. 115, 121 (1994)

(congressional silence lacks persuasive significance). 

 In the end, there is no reason to treat chapter 11 debtors

differently than chapter 13 debtors in this context. As the

Evans court pointed out, at the time Congress enacted § 348(f),

it “clearly conveyed its purpose to avoid penalizing debtors who

first attempt a repayment plan . . . [t]here is no policy reason

as to ‘why the creditors should not be put back in precisely the

same position as they would have been had the debtor never

sought to repay his debts . . . .’” 464 B.R. at 441.

VI. CONCLUSION

For the reasons stated, we AFFIRM. 

-9-