Opinion ID: 199203
Heading Depth: 2
Heading Rank: 1

Heading: The Confirmed Plan in a Chapter 13 Bankruptcy Case.

Text: 22 Section 1327(b) of the Bankruptcy Code states that the confirmation of a plan vests all property of the estate in the debtor. 11 U.S.C. § 1327(b). In addition, section 1327(c) adds that such vesting is free and clear of any claim or interest of any creditor provided for by the plan. Id. The language used by the bankruptcy court in its Confirmation Order was in consonance with these Code provisions. 23 The Debtors argue that in defining the concept property of the estate the district court ignored various sections of the Bankruptcy Code; particularly section 541(a)(6) which establishes that the concept property of the estate includes proceeds of or from property of the estate. 11 U.S.C. § 541(a)(6). Therefore, the Debtors argue that section 1327 of the Code, combined with section 541, vested in them the Property along with its proceeds free and clear of any claim or interest of any creditor. 11 U.S.C. § 1327(c). 24 However, in direct contraposition with the Debtors' intended interpretation is section 1306(a) of the Bankruptcy Code, which defines the concept property of the estate within a Chapter 13 bankruptcy thus: 25 Property of the estate includes, in addition to the property specified in section 541 of this title: 26 (1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first; and 27 (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, 11, or 12 of this title, whichever occurs first. 28 11 U.S.C. § 1306(a). While this section does extend the application of section 541 to cases filed under Chapter 13, it does so within a specific context. In particular, the status of the property of the estate after the confirmation of a Chapter 13 plan is a controversial issue in itself. See Russell G. Donaldson, Continued Existence of Bankruptcy Code Chapter 13 Estate After Confirmation of the Chapter 13 Plan, 126 ALR Fed. 665 (1995)(Supp. 1999); David B. Wheeler, Whose Property Is It Anyway? 18-NOV Am. Bankr. Inst. J. 14 (1999)(brief review and analysis of the four different approaches currently used by the bankruptcy courts to harmonize §§ 1327 and 1306 of the Bankruptcy Code); Thomas E. Ray, Post-Petition Claims and the Automatic Stay in Chapter 13, 19-FEB Am. Bankr. Inst. J. 12 (2000)(reference to the same variety of interpretations given by the bankruptcy courts to §§ 1327 and 1306 of the Code); Vickie L. Vaska, Commentary: Property of the Estate After Confirmation of a Chapter 13 Repayment Plan: Balancing Competing Interests, 65 Wash. L. Rev. 677 (July 1990); see also In re Reynard, 250 B.R. 241, 246-47 (Bankr.E.D.Va. 2000); In re Holden, 236 B.R. 156, 160-63 (Bankr.D.Vt. 1999); In re Rangel, 233 B.R. at 198. 29 By stating that the bankruptcy estate continues to be replenished by post-petition property until the case is closed, dismissed, or converted under chapter 7, 11 or 12 of the Bankruptcy Code, section 1306(a) is actually providing for the continued existence of the bankruptcy estate until the earliest of any of the above-mentioned events occur. The meaning of the vesting language of section 1327(b) within this context has been explored far and wide throughout the nation. In fact, the bankruptcy court noted that sections 1306(a) and 1327(b) of the Code are difficult to reconcile in this regard. In re Barbosa, 236 B.R. at 545, quoting In re Rangel, 233 B.R. at 193. 30 Some courts have interpreted section 1306(a) as actually providing for the continuation of the bankruptcy estate until the earliest of any of the above-mentioned events. See Security Bank of Marshall Town v. Neiman, 1 F.3d 687 (8th Cir. 1993). Still others have held that the confirmation order terminates the estate altogether, re-vesting all property of the estate in the debtor. In re Olivier, 193 B.R. 992 (Bankr.N.D.Ga. 1996); In re Petruccelli, 113 B.R. 5 (Bankr.S.D.Cal. 1990). A third approach, called the-middle-of-the-road approach, stands for the proposition that the estate continues to exist only with regard to property used to fund the plan. In re Leavell, 190 B.R. 156 (Bankr.E.D.Va. 1995); In re Ziegler, 136 B.R. 191 (Bankr.N.D.Ill. 1992). All of these positions have been criticized; the first two for overly emphasizing either section 1306 or 1327, rendering the opposing section meaningless, Wheeler, supra at 14, while the third approach is criticized for involving a subjective analysis not contemplated, or provided for, by the Code. Id.; see also Donaldson, supra, 126 ALR Fed. 665 §§ 2-5. 31 However, a fourth line of cases has held that by virtue of sections 1327(b)-(c), property of the estate at the time of confirmation vests in the debtors free of any claims from the creditors. The estate does not cease to exist however, and it continues to be funded by the Debtors' regular income and post-petition assets as specified in section 1306(a). In re Reynard, 250 B.R. at 247; In re Trumbas, 245 B.R. 764, 766 (Bankr.D.Mass. 2000); In re Holden, 236 B.R. at 162-63; In re Rangel, 233 B.R. at 198. 32 Many commentators consider this approach to be the best, since it gives meaning to both sections 1306 and 1327, without the subjective analysis required by the middle-of-the-road approach. E.g. Wheeler, supra. It was also the approach followed by the bankruptcy court in this case. Because we think that this approach has a logical consistency that harmonizes two apparent inconsistent sections, we hereby adopt it. However, we note that this rule cannot be applied in an inflexible manner, for in spite of the vesting provided by section 1327 of the Code, until all payments due under the plan are made, both the trustee and the unsecured creditors have an interest in the preservation of the debtor's financial situation, and in the extension of the ability-to-pay standard to future situations under the plan. In this particular case, receiving proceeds has also altered the debtor's financial circumstances, which brings into play § 1329 of the Code. In re Suratt, 1996 WL 914095,  (D.Or. 1996). 7 33