Court Opinion

ID: 1087283
Source: CourtListenerOpinion
Date Created: 2013-10-29 00:00:46.935834+00
Date Added: 2024-06-11T12:17:39.461655
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                               No. 13-1024

RICKEY DEAN CARROLL; CHERI CARROLL,

                Debtors-Appellants,

           v.

JOHN FLETCHER LOGAN,

                Trustee – Appellee.

Appeal from the United States Bankruptcy Court for the Eastern
District of North Carolina, at Wilson. J. Rich Leonard, United
States Bankruptcy Judge. (09-01177-8-JRL)

Argued:   September 17, 2013                 Decided:   October 28, 2013

Before NIEMEYER, WYNN, and FLOYD, Circuit Judges.

Affirmed by published opinion. Judge Wynn wrote the opinion, in
which Judge Niemeyer and Judge Floyd joined.

ARGUED: Cortney I. Walker, SASSER LAW FIRM, Cary, North
Carolina, for Appellants.    John Fletcher Logan, OFFICE OF THE
CHAPTER 13 TRUSTEE, Raleigh, North Carolina, for Appellee.    ON
BRIEF: Travis Sasser, SASSER LAW FIRM, Cary, North Carolina, for
Appellants.   Michael Brandon Burnett, OFFICE OF THE CHAPTER 13
TRUSTEE, Raleigh, North Carolina, for Appellee.
WYNN, Circuit Judge:

      This     appeal      concerns      whether          Bankruptcy    Code     Section

1306(a) extends the 180-day time limit under Bankruptcy Code

Section 541 for identifying property that may be included in a

bankruptcy estate.           Appellants Rickey Dean Carroll and Cheri

Carroll argue that the bankruptcy court erred by including an

inheritance that postdated their Chapter 13 bankruptcy petition

by   more    than   180    days     as   part       of    their   bankruptcy     estate.

Because      Section      1306(a)     plainly        extends      the   timeline       for

including “the kind” of property “specified in” Section 541 in

Chapter 13 bankruptcy estates, we affirm the bankruptcy court’s

inclusion     of    the    inheritance         in        the   Carrolls’     Chapter   13

bankruptcy estate.

                                          I.

      In February 2009, the Carrolls filed a joint petition for

relief under Chapter 13 of the Bankruptcy Code.                              Under that

reorganization chapter, debtors with regular income pay back a

portion of their debts through a repayment plan.                           The Carrolls’

repayment plan, approved in August 2009, required them to pay

$2,416 for 6 months followed by $2,480 for 54 months.

      In August 2012, over three years after filing their Chapter

13 petition, the Carrolls notified the bankruptcy court that Mr.

                                           2
Carroll’s      mother      had    died   in    December      2011    and    that,      as    a

consequence,         Mr.     Carroll       anticipated        an     inheritance            of

approximately        $100,000.           Because      Mr.    Carroll       acquired     the

inherited      interest      before      their      bankruptcy      case    was   closed,

dismissed, or converted to a proceeding under another bankruptcy

code    chapter,      the    Chapter      13       trustee   moved     to    modify     the

Carrolls’       repayment         plan    to       include   “an     amount       of    the

Inheritance, if and when received, sufficient to pay in full all

of the allowed general unsecured claims . . . .”                       J.A. 76.

       Over    the   Carrolls’       objection,       the    bankruptcy      court     held

that Mr. Carroll’s inheritance was property of the bankruptcy

estate.       In re Carroll, 09-01177-8-JRL, 2012 WL 5512356, at *1

(Bankr.   E.D.N.C.         Nov.    14,   2012).        The   bankruptcy      court     thus

ordered that the inheritance be included in the Carrolls’ plan

to pay unsecured creditors, who, under the original repayment

plan, were expected to receive payment on 3.8% of their allowed

claims.       Id. at *2.         The Carrolls noticed their appeal, and the

bankruptcy court stayed its order and certified a direct appeal

to this Court.

                                           II.

       The sole issue on appeal is whether the bankruptcy court

properly included Mr. Carroll’s inheritance, which postdated the

                                               3
Carrolls’   bankruptcy     petition   by    more      than   180    days,      in    the

bankruptcy estate.       We review this issue of law de novo.                   In re

Maharaj, 681 F.3d 558, 568 (4th Cir. 2012).

     The interplay of Bankruptcy Code Sections 541 and 1306 is

at the heart of this dispute.             We begin our analysis with the

statutes’ plain language.         “In arriving at the plain meaning, we

. . . assume that the legislature used words that meant what it

intended; that all words had a purpose and were meant to be read

consistently; and that the statute’s true meaning provides a

rational response to the relevant situation.”                      Salomon Forex,

Inc. v. Tauber, 8 F.3d 966, 975 (4th Cir. 1993).

     Bankruptcy     Code    Section       541     identifies       the        property

included in bankruptcy estates generally.                11 U.S.C. § 541.            The

statute,    which   is   not   specific      to    any    particular          type    of

bankruptcy proceeding, includes in estates:

     5) Any interest in property that would have been
     property of the estate if such interest had been an
     interest of the debtor on the date of the filing of
     the petition, and that the debtor acquires or becomes
     entitled to acquire within 180
     days after such date--
     (A) by bequest, devise, or inheritance[.]

11 U.S.C. § 541(a)(5) (emphasis added).

     Section   1306(a)     then    expands      the    definition        of    estate

property for Chapter 13 cases specifically, stating:

     (a) Property of the estate includes, in addition to
     the property specified in section 541 of [the Code]--

                                      4
       (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 [the
       Code], whichever occurs first; and

11 U.S.C. § 1306(a) (emphasis added).

       Congress has harmonized these two statutes for us.                             With

Section    541,       Congress      established       a    general      definition     for

bankruptcy estates.           With Section 1306, it then expanded on that

definition specifically for purposes of Chapter 13 cases.                             Thus,

“Section 1306 broadens the definition of property of the estate

for chapter 13 purposes to include all property acquired and all

earnings    from       services      performed        by   the     debtor     after    the

commencement      of    the    case.”       S.     Rep.    No.    95-989,     at   140-41

(1978).

       The statutes’ plain language manifests Congress’s intent to

expand    the    estate    for      Chapter     13    purposes     by    capturing     the

types, or “kind,” of property described in Section 541 (such as

bequests,       devises,      and    inheritances),         but    not      the    180–day

temporal restriction.               11 U.S.C. § 1306(a).             This is because

“[t]he kind of property is a distinct concept from the time at

which the debtor’s interest in the property was acquired.”                              In

re Tinney, 07-42020-JJR13, 2012 WL 2742457, at *2 (Bankr. N.D.

Ala.     July    9,    2012).         And     on     its   face,     Section       1306(a)

incorporates only the kind of property described in Section 541

into its expanded temporal framework.

                                            5
      In essence, Section 1306 is a straightforward formula for

calculating Chapter 13 estates:

 A Chapter 13                Property                       The kind of property
 Bankruptcy                  described                      (e.g., inheritances)
    =
 Estate                =     in Section 541           +     described in Section
                                                            541 and acquired
                                                            before the Chapter
                                                            13 case is closed,
                                                            dismissed, or
                                                            converted

See 11 U.S.C. 1306(a).

      Section       1306’s    extension        of    a    Chapter     13    bankruptcy

estate’s reach until the Chapter 13 case is closed, dismissed,

or converted constitutes “a rational response to the relevant

situation.”         Salomon     Forex,     8     F.3d     at   975.        Chapter    13

proceedings     provide      debtors      with      significant     benefits:        For

example, debtors may retain encumbered assets and have their

defaults cured, while secured creditors have long-term payment

plans     imposed    upon    them   and    unsecured       creditors       may   receive

payment on only a fraction of their claims.                           See 11 U.S.C.

§§   1322, 1325. 1

      1
       By contrast, in Chapter 7 liquidation proceedings, a
debtor’s estate is largely subject to liquidation.   Generally,
the estate is “identified with a snapshot taken of the debtor’s
property when his petition for relief is filed.” In re Tinney,
2012 WL 2742457, at *2. And the secured creditors are soon free
to foreclose on mortgages and repossess encumbered cars and
other property.    Id.   In turn, the debtor is not subject to
multi-year repayment obligations.

                                           6
     In exchange for those benefits, a Chapter 13 debtor makes a

multi-year    commitment        to     repay     obligations   under    a     court-

confirmed plan.         Id.      The repayment plan remains subject to

modification for reasons including a debtor’s decreased ability

to pay according to plan, as well as the debtor’s increased

ability to pay.            See 11 U.S.C. §          1329.   As we have stated

before,   “[w]hen      a     [Chapter    13]     debtor’s   financial       fortunes

improve, the creditors should share some of the wealth.”                      In re

Arnold, 869 F.2d 240, 243 (4th Cir. 1989). 2

     The overwhelming majority of courts to have addressed this

issue “agree that § 1306 modifies the § 541 time period in

Chapter 13 cases.”            In re Vannordstrand, 356 B.R. 788, at *2

(B.A.P.   10th   Cir.       2007)     (collecting    cases);   see    also    In   re

Tinney,   2012   WL        2742457,    at   *1    (noting   that     “[t]he   large

majority of courts to address the issue agree” and collecting

cases).      Several       treatises     state    the   proposition     matter-of-

factly.   See, e.g.,          Hon. Joan N. Feeney, Bankruptcy Law Manual

     2
       In In re Arnold, we did not address Sections 541 and 1306.
Nevertheless, we had to decide whether a $120,000 increase in
the debtor’s annual income warranted modification of his Chapter
13 repayment plan.    We held that the bankruptcy court did not
abuse its discretion by increasing the debtor’s plan payments to
account for his substantially increased income. “It is grossly
unfair for a debtor, who experiences an increase in yearly
income of $120,000, to refuse to share some of that with
creditors who are getting no more than 20 cents on the dollar
for their claims under the original Chapter 13 plan.”       In re
Arnold, 869 F.2d at 243.

                                            7
§ 13:13 (5th ed. 2013) (“Significantly, property of the estate

in Chapter 13 cases is a broader concept as it includes property

also described in § 1306, which supplements § 541’s definition

of property of the estate of Chapter 13 debtors.”); 8A Corpus

Juris      Secundum       Bankruptcy         §    561     (2013)     (“In   a     Chapter       13

individual debt adjudgment case, the estate includes property of

the kind generally included in estates, notwithstanding the fact

that       such     property       is    acquired         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 . .

. .”).       And even this Court has indicated that Section 1306(a)

“adds      certain       property       to   a    §   541   bankruptcy      estate       in   the

Chapter 13 context.”              In re Maharaj, 681 F.3d at 564. 3

       The        Carrolls     nevertheless             contend    that     Mr.        Carroll’s

inheritance should be excluded from their Chapter 13 bankruptcy

estate      under     two    principles          of   statutory      interpretation:          the

principle         that    courts    “must        give    effect    to    every    word     of    a

statute,” and the principle that “specific language in a statute

governs general language.”                       Appellants’ Br. at 8-9.                 We are

convinced by neither argument.

       3
       We recognize that a couple of courts have taken a contrary
view. See In re Key, 465 B.R. 709, 712 (Bankr. S.D. Ga. 2012);
In re Walsh, 07-60774, 2011 WL 2621018, at *2 (Bankr. S.D. Ga.
June 15, 2011); and In re Schlottman, 319 B.R. 23, 24-25 (Bankr.
M.D. Fla. 2004).       However, we find those outlier cases
unconvincing.

                                                  8
       Unquestionably, we agree that courts should give effect to

every word of a statute whenever possible.            Broughman v. Carver,

624 F.3d 670, 677 (4th Cir. 2010).              And doing so here requires

us    to   reject   the   Carrolls’   argument.     For     if   Section     541’s

180-day rule restricts what is included in a Chapter 13 estate,

then Section 1306(a), which expands the temporal restriction for

Chapter 13 purposes, loses all meaning.              By contrast, neither

statute is rendered superfluous, and both are given effect, if

Section 1306(a)’s extended timing applies to Chapter 13 estates

and supplements Section 541 with property acquired before the

Chapter 13 case is closed, dismissed, or converted.

       Further, while we know well the “canon of construction that

‘the specific governs the general,’” Broughman, 624 F.3d at 676,

applying that canon here does not further the Carrolls’ cause.

In particular, we reject the Carrolls’ contention that Section

541(a)(5) is “specific” while Section 1306(a) is “general.”                    On

the    contrary,      Section   1306(a)    is    specific    to    Chapter      13

bankruptcies and defines estates solely for purposes of that

reorganization chapter.         Section 541, by contrast, is a general

provision that provides generic contours for bankruptcy estates.

Thus, even under the two statutory interpretation principles the

Carrolls     press,    the   bankruptcy    court   properly       included    the

inherited property in the Carrolls’ bankruptcy estate.

                                       9
                                      III.

     The Supreme Court has eschewed interpreting the Bankruptcy

Code such that it “would deny creditors payments that the debtor

could easily make.”        Hamilton v. Lanning, 130 S. Ct. 2464, 2476

(2010).      The   plain   language    of    Section    1306(a)   blocks   the

Carrolls from depriving their creditors a part of their windfall

acquired before their Chapter 13 case was closed, dismissed, or

converted.     Accordingly,     the    bankruptcy      court   correctly   held

that Mr. Carroll’s inheritance was property of the bankruptcy

estate under Section 1306(a).

                                                                     AFFIRMED

                                       10