NABT Amicus Briefs

In re: JOHN FELIX CASTLEMAN, SR., KIMBERLY KAY CASTLEMAN, Debtors.

JOHN FELIX CASTLEMAN, SR., KIMBERLY KAY CASTLEMAN, Appellants
– v. –
DENNIS LEE BURMAN, Chapter 7 Trustee, Appellee

SUMMARY OF ARGUMENT

Section 348 of the Bankruptcy Code governs what happens when bankruptcy cases are converted from one chapter of the Bankruptcy Code to another. In pertinent part, § 348(f)(1) states as follows: “Except as provided in paragraph (2), when a case under chapter 13 of this title is converted to a case under another chapter of this title—

• property of the estate in the converted case shall consist of property of the estate, as of the date of the filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion”. (Emphasis added).

The Appellants argue that §348(f)1)(A) should be interpreted to hold that the post-petition, pre-conversion appreciation of their residence is not property of the bankruptcy estate, but instead inures to the debtors. Essentially, they seek to characterize the post-petition appreciation as an asset separate from the real estate itself. Both the Bankruptcy Court and the District Court rejected Appellants’ arguments, holding instead that the appreciation attributable to property that was part of the bankruptcy estate when the case was initially filed is property of the bankruptcy estate. The bankruptcy court also ruled that to the extent the increase in equity was attributable to mortgage payments made while the case was in Chapter 13, Appellants could file a motion for allowance of an administrative claim with the court.

Amicus curiae believes that the lower courts’ holdings should be affirmed. Bankruptcy Code § 348(f)(1) unambiguously provides that the Appellants’ residence is property of the bankruptcy estate, and Appellants’ contention that the post-petition appreciation of a pre-petition asset is not an asset of the bankruptcy estate relies on a strained reading of § 348 that is at odds with the common usage of the term “equity”, other provisions of the Bankruptcy Code concerning valuation, and inconsistent with the administration of Chapter 7 cases, generally. Further, Appellant’s characterization of appreciation as separate from the underlying asset is contrary to interpretation of the term in other federal law. Indeed, §348 is not a statute about valuation at all; it simply defines what constitutes estate property in a converted case.