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the date of filing of the petition , that remains in the possession of or is under the control of the debtor on the date of conversion .” 11 U . S . C . § 348 ( f )( 1 )( A ). Importantly , it noted the exception in Section 348 ( f ) that , if the conversion is in “ bad faith ,” “ the property of the estate in the converted case shall consist of the property of the estate as of the date of conversion .” Id . at 1221 . The Tenth Circuit noted that the intent of this provision is that Chapter 13 debtors “ who try a repayment plan , but ultimately fail , are generally no worse off upon a good-faith conversion than if they had originally filed under Chapter 7 ,” which encourages Chapter 13 filings . Id . It then noted , “ Notwithstanding Congress ’ s apparent attempt to clarify the proper makeup of a converted estate with the enactment of 11 U . S . C . § 348 ( f ), court have since split on whether property interests acquired post-petition , but preconversion are property of the converted estate or of the debtor .” Id . In referencing the lower court ’ s conclusion that the postpetition , pre-conversion increase in equity was property of the debtor , the circuit recognized that , “[ t ] he [ bankruptcy ] court reasoned that 11 U . S . C . § 348 ( f )( 1 )( A ) is ambiguous as to what constitutes ‘ property ,’ but based on the legislative history of the statute , it means the property of the estate as it existed on the Chapter 13 petition date , with all its attributes , including the amount of equity that existed on that date .” Id . at 1222 ( emphasis in original ).
While affirming the lower courts , the Tenth Circuit refused to rely on the legislative history . Instead , the Tenth Circuit distinguished “ proceeds ” from “ all legal and equitable interests ” under Section 541 and concluded that , “[ b ] ased on the plain language of § 348 ( f )( 1 )( A ), then , the sale proceeds — a property interest distinct from the physical house from which they were derived — do not enter the converted Chapter 7 estate .” Id . at 1223 . The Circuit reasoned that since the proceeds did not exist as of the Chapter 13 filing , they were not property that remained in the possession or control of the debtor as required under Section 348 ( f ) ( 1 )( A ). Further , as this was a situation where there was a confirmed Chapter 13 plan that then failed before conversion , the Tenth Circuit noted that , under Section 1327 ( b ), when the plan was confirmed , it “ vests all of the property of the estate in the debtor .” Id . Thus , when the home was sold , it was property of the debtor , and not property of the estate . The Circuit noted that while it reached the same conclusion as the courts below , “ they did so by asserting the statutory language is ambiguous and pivoting to the legislative history .” Id . at 1224 . While it reviewed the legislative history , which supported its conclusion , the Tenth Circuit found it could rely on the plain language of the statute and did not need to rely on the legislative history . Recognizing the policy issue of validating debtors selling property before conversion , the court referred to the protection in Section 348 ( f )( 2 ) which protects against abuse if the conversion is in bad faith . The Tenth Circuit concluded : “ The most faithful reading of the statutory text supports the conclusion that the proceeds from the sale of the Debtor ’ s house belongs to the Debtors , not the Chapter 7 estate .” Id . at 1226 .
The Ninth Circuit decided this issue the opposite way a year later in In re Castleman , 75 F . 4th 1052 ( 9th Cir . 2023 ). In this case , the Chapter 13 plan was confirmed , but after 20 months , a temporary job loss and the contraction of Parkinson ’ s disease by one of the debtors , the debtors could no
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