1The Honorable Arthur B. Federman, Chief United States Bankruptcy Judge for the

Western District of Missouri, sitting by designation.

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

________________

No. 00-6005ND

________________

In re: Roger Edward Arzt and *

Carol Ann Arzt *

*

Debtor *

*

Kip M. Kaler, as Bankruptcy Trustee *

for Roger Edward Arzt and *

Carol Ann Arzt * Appeal from the United States 

* Bankruptcy Court for the 

Plaintiff-Appellee * District of North Dakota 

*

v. *

*

David A. Overboe and *

John R. Wentz *

*

Defendants-Appellants *

________________

Submitted June 30, 2000

Filed: August 29, 2000

________________

Before KRESSEL, SCHERMER, and FEDERMAN,1 Bankruptcy Judges

________________

FEDERMAN, Bankruptcy Judge
2The Honorable William A. Hill, United States Bankruptcy Judge for the District of

North Dakota.

2

David A Overboe and John R. Wentz (the Transferees) appeal from a bankruptcy court

order avoiding a pre-petition preferential transfer, and holding that the property so transferred

is property of the bankruptcy estate.2 For the following reasons, we affirm the decision of the

bankruptcy court.

I

On or before March 26, 1999, assets owned by Roger and Carol Arzt (the Debtors)

included a homestead with approximately $80,000.00 in equity. The Debtors also had

outstanding obligations to the Transferees and the Internal Revenue Service, among others. On

March 26, 1999, the Debtors granted Transferee David Overboe a mortgage against the

homestead, duly recorded that same day, in the amount of $12,000.00. The Debtors granted

the mortgage in order to secure an antecedent debt in the amount of $9,135.00, for legal

services previously rendered. The remaining $2,865.00 was to secure payment for future

services to be incurred in relation to an anticipated bankruptcy filing. 

Also on March 26, 1999, the Debtors granted Transferee John Wentz a mortgage

against the homestead, duly recorded that same day, in the amount of $58,000.00. The Debtors

granted this mortgage to secure a debt to Mr. Wentz that had been outstanding for a number of

years. 

On March 30, 1999, the Debtors filed a Chapter 7 bankruptcy petition, and Appellee Kip

M. Kaler (the Trustee) was appointed as the Chapter 7 bankruptcy trustee.

On August 24, 1999, the Trustee filed an adversary proceeding against the Transferees.

He sought to avoid the mortgage to Wentz, and all but $2,865.00 of the $12,000.00 mortgage

to Overboe, as preferential transfers, pursuant to section 547 of the Bankruptcy Code (the

Code). The Trustee also sought to preserve the Debtor’s equity in their homestead for the

benefit of the bankruptcy estate, pursuant to section 551 of the Code. The Transferees
3210 B.R. 799 (Bankr. D. N.D. 1997), aff’d, 162 F.3d 1166 (8th Cir. 1998) (Table).

4Gourley v. Usery (In re Usery), 123 F.3d 1089, 1093 (8th Cir. 1997); O'Neal v.

Southwest Mo. Bank (In re Broadview Lumber Co., Inc.), 118 F.3d 1246, 1250 (8th Cir.

1997) (citing First Nat'l Bank of Olathe, Kansas v. Pontow, 111 F.3d 604, 609 (8th

Cir.1997)). Fed. R. Bankr. P. 8013.

5First Nat’l Bank of Olathe, Kansas v. Pontow (In re Pontow), 111 F.3d 604, 609 (8th

Cir. 1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997).

3

conceded that the transfers were preferential. They argued, however, that the Trustee could not

avoid the transfer by the Debtors of their exempt property because creditors could not

otherwise reach the exempt property. 

The bankruptcy court, relying on its ruling in Kaler v. Letcher (In re Wegner),

3

 ruled in

favor of the Trustee. Transferees appealed. The Transferees make three arguments on appeal.

They first argue that the Debtors’ right to use, transfer, or encumber their homestead allowance

is a fundamental right granted to the Debtors by state law. They next argue that by the time the

Trustee filed this adversary proceeding, the Debtors had claimed the mortgaged property as

exempt, thus it was no longer property of the bankruptcy estate, and not subject to the Trustee’s

avoidance powers. Finally, the Transferees argue that the Bankruptcy Appellate Panel for the

Eighth Circuit (the BAP) is not constrained by the Eighth Circuit’s summary affirmance of In

re Wegner. We will deal with the first two arguments simultaneously.

II

A bankruptcy appellate panel shall not set aside findings of fact unless clearly

erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the

credibility of the witness.4 In this case, there is no factual dispute. We review the legal

conclusions of the bankruptcy court de novo.

5

III

Section 541 of the Code provides that the filing of a bankruptcy petition, without more,

creates an estate that contains all property in which the debtor has a legal or equitable interest:
611 U.S.C. § 541(a)(1).

711 U.S.C. § 522(b)(1) and (2)(A).

8N.D. Cent. Code § 28-22-17 (Supp. 1999); In re Reisnour, 56 B.R. 225, 227 (D.

N.D. 1985).

9Mund v. Rambough, 432 N.W.2d 50, 56 (N.D. 1988); Karsznia v. Kelsey, 262

S.W.2d 844, 844 (Mo. 1953); Meeks Leasing Company v. Young, 881 S.W.2d 232, 236

(Mo. Ct. App. 1994); 11 U.S.C. § 522(f)(2)(A).

4

(a) The commencement of a case under section 301, 302, or 303 of this title

creates an estate. Such estate is comprised of all the following property,

wherever located and by whomever held:

(1) Except as provided in subsections (b) and (c)(2) of this

section, all legal or equitable interests of the debtor in property

as of the commencement of the case.6

Thus, all of the Debtors’ property became property of the bankruptcy estate on the date the

case was filed. That property included Debtors remaining equity in their homestead, which was

less than $10,000.00 after Debtors voluntarily encumbered the homestead pre-petition.

Debtors, however, have the right to exempt certain property from the estate based on either the

Code or applicable state law.7 Residents of North Dakota, where the Debtors resided on the

date they filed their bankruptcy petition, are allowed only to claim exemptions allowable by

North Dakota law.8

Under either state or federal law, however, debtors can only exempt property to the

extent there is value in the property over and above consensual liens against the property.9 On

the date they filed their Chapter 7 petition, the Debtors could, therefore, only claim as exempt,

that equity remaining after they had granted the Transferees consensual liens against their

homestead. 

The Code also vests in a bankruptcy trustee the power to avoid a transfer of property

made by the debtor to a third party, if the transfer was: (1) made within 90 days of filing the

petition; (2) made while the debtor was insolvent; (3) made on account of an antecedent debt;

and (4) made while the debtor had other unsecured creditors:
1011 U.S.C. § 547(b).

5

(B) Except as provided in subsection (c) of this section, the

trustee may avoid any transfer of an interest of the debtor in

property --

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed

by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made--

(A) on or within 90 days before the

date of the filing of the petition;

 . . .

(5) that enables such creditor to receive more than

such creditor would receive if --

(A) the case were a case under

chapter 7 of this title;

(B) the transfer had not been made;

and

(C) such creditor received payment

of such debt to the extent provided

by the provisions of this title.10

The Transferees agreed at the outset that the granting of these two mortgages satisfied the

elements of section 547(b), therefore, the transfers were preferential. The Debtors executed

and duly recorded mortgages within four days of filing their Chapter 7 bankruptcy petition that,

in effect, converted the Transferees’ general unsecured claims into secured claims. 
1111 U.S.C. § 551.

12Id.

1311 U.S.C. § 522(g).

6

But, the Code not only vests a bankruptcy trustee with the power to avoid a preferential

transfer, it also provides that once the transfer is avoided, the property that was transferred

becomes property of the estate:

Any transfer avoided under section 522, 544, 547, 548, 549, or 724(a) of this

title, or any lien void under section 506(d) of this title, is preserved for the

benefit of the estate but only with respect to property of the estate.11

While the Code, thus, provides that once a trustee avoids a preferential transfer the

property becomes property of the estate,12 Section 522(g) also provides that a debtor can

exempt any equity created by the avoided transfer only under certain circumstances:

(g) Notwithstanding sections 550 and 551 of this title, the debtor may exempt

under subsection (b) of this section property that the trustee recovers under

sections 510(c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that

the debtor could have exempted such property under subsection (b) of this

section if such property had not been transferred, if—

(1) (A) such transfer was not a voluntary transfer of such

property by the debtor; and

(B) the debtor did not conceal such property; or

(2) the debtor could have avoided such transfer under subsection (f)(2) this 

section.13

None of those circumstances are present here. Debtors voluntarily chose to transfer most of

the equity in their homestead prior to filing their Chapter 7 bankruptcy petition, and the

Debtors could not have avoided these two mortgages under section 522(f).
14210 B.R. 799 (Bankr. D. N.D. 1997), aff’d, 162 F.3d 1166 (1998) (Table).

15Id. at 800.

16Wegner, 210 B.R. at 802 (citing In re Heintz, 198 B.R. 581, 586 (9th Cir. B.A.P.

1996)).

17Wegner, 210 B.R. at 802.

18Id.

19See Fox Hill Office Investors, Ltd v. Mercantile Bank (In re Fox Hill Office

Investors, Ltd.), 101 B.R. 1007, 1023 (Bankr. W.D. Mo. 1989) (holding that section 551

preserves the avoided transfer or lien to the estate). See also In re Scott, 2000 WL 122360,

*1 (Bankr. N.D. Iowa Jan. 3, 2000) (holding that if a debtor had voluntarily granted a

security interest that was later avoided, the debtor was not entitled to exempt the interest

recovered); Schieffler v. Beshears (In re Beshears), 182 B.R. 235, 240 (Bankr. E.D. Ark.

1995) (holding that debtors cannot claim an exemption in a homestead after trustee avoided

the transfer of the property as a fraudulent conveyance because the transfer by the debtors

was voluntary); In re Flitter, 181 B.R. 938, 941 (Bankr. D. Minn. 1995)(stating that where a

debtor granted a consensual security interest in property later recovered by the trustee, the

debtor voluntarily parted with the value and, thus, he cannot use section 522(g)(1) as the

basis for a claim of exemption).

7

The bankruptcy court in North Dakota dealt with this precise issue in Kaler v. Letcher

(In re Wegner).

14 In Wegner, the trustee sought to avoid an unrecorded first mortgage against

debtors’ homestead and to preserve the mortgage lien for the benefit of the estate.15 The holder

of the unrecorded first mortgage argued that because the homestead was exempt property at

the commencement of the case, section 551 was ineffective to bring any value to the estate.

The court rejected this argument and found, instead, that a debtor may only exempt property

the trustee recovers under section 551 if the transfer was not a voluntary transfer.16 The

Wegner Court then stated that the “exemption provisions of section 522 suggest by negative

implication that a debtor cannot, by utilizing exemption statutes, take advantage of the trustee’s

recovery efforts.”17 The Court then concluded that the “clear implication here is that property

that was voluntarily transferred by the debtor, but recovered by the trustee under section 551,

cannot be exempted.”18 Other courts in the Eighth Circuit have also interpreted section 551 to

so hold.19 As the Court in Wegner explained, a bankruptcy trustee who avoids a transfer steps
20Wegner, 210 B.R. at 802.

21___ U.S. ___, 120 S. Ct. 1942, ___ L. Ed. 2d ___ (2000).

22Id. at 1949 (quoting Kelly v. Robinson, 479 U.S. 36, 44, 107 S. Ct. 353, 358, 93 L.

Ed. 2d 216 (1986)).

23Id. (quoting BFP v. Resolution Trust Corp., 511 U.S. 531, 114 S. Ct. 1757, 128 L.

Ed. 2d 556 (1994).

8

into the shoes of the transferee and acquires the same rights that the transferee held.20 In other

words, after the Trustee avoided the preferential transfers to the Transferees, the Trustee held

the two mortgages for the benefit of the bankruptcy estate as a secured creditor. Thus, the only

homestead equity Debtors had available to exempt after the commencement of this Chapter

7 case was the equity remaining after executing the two mortgages. As such, we find that the

Trustee’s recovery from the Transferees does not impair the Debtor’s right to either encumber

their homestead, or claim their homestead as exempt, under North Dakota law.

IV

The Transferees argue, however, that section 522(g) notwithstanding, under the

Bankruptcy Act of 1898 (the Act), a bankruptcy trustee had no authority to avoid a transfer of

exempt property because such property was not subject to the claims of creditors. They also

claim that the Code did not specifically overrule such precedent, therefore, it is still relevant

in this case. We disagree. The United States Supreme Court recently discussed the precedential

value of legal conclusions, reached under the Act, that conflict with the language of the Code.

In Hartford Underwriters v. Union Planters Bank, N.A. (In re Hen House Interstate, Inc.)21 the

Supreme Court explained that “while pre-Code practice ‘informs our understanding of the

language of the Code,’ . . . it cannot overcome that language.”22 The Court then stated that

“‘[w]here the meaning of the Bankruptcy Code’s text is itself clear . . . its operation is

unimpeded by contrary . . . prior practice.”23 We find that the language in section 551 is clear

and unambiguous, therefore, it leaves “no room for clarification by pre-code practice.” It may

be true that creditors cannot reach a debtor’s exempt interest in property, but it is also true that

debtors are free to voluntarily encumber that interest. That is what happened in this case, and
24See Anastasoff v. United States of America, Case No-993917EM (8th Cir. Aug. 22,

2000).

25Id. at 3.

26Id.

27Id.

28Id. at 4.

9

since that voluntary transfer was preferential, the Trustee’s recovery of the transfer is for the

benefit of the estate, not the debtors. 

V

The Transferees make one final argument. They claim that the Eighth Circuit affirmed

both the bankruptcy court and the district court’s holdings in Wegner by a summary affirmance,

therefore, the BAP is not bound by that affirmance. The Eighth Circuit recently ruled on that

precise issue.24 In Anastasoff, the Court declared unconstitutional that portion of Rule 28(A)(i)

of the Federal Procedural Rules Service, Court of Appeals, Eighth Circuit, that declares that

unpublished opinions have no precedential value.25 As the Court stated so eloquently:

Inherent in every judicial decision is a declaration and interpretation of a general

principle or rule of law. . . . This declaration of law is authoritative to the extent

necessary for the decision, and must be applied in subsequent cases to similarly

situated parties.26

 

The Court found that the precedential effect of judicial opinions derives from the nature of

judicial power, and the limitation place thereon by Article III of the United States

Constitution.27 Any attempt to avoid the precedential effect of a prior decision merely because

of a decision to not publish same would expand judicial power beyond the bounds envisioned

by the Framers of the Constitution.28 We, therefore, affirm the bankruptcy court’s conclusions

in this case because we are bound by the Eighth Circuit’s opinion in Wegner. Moreover, we
10

affirm the bankruptcy court’s legal conclusions because we find that sections 522(g)(1)(A) and

551 of the Code preserve the recovered property for the benefit of the bankruptcy estate.

VI

Accordingly, we affirm the judgment of the bankruptcy court.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL,

EIGHTH CIRCUIT