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Debtor not liable for depreciated loss in value of car when case converted from 13 to 7: Lang

In re Lang Bk 05-16767 (Judge Bucki, decision September 17, 2010.) When this debtor filed Chapter 13 in 2005, she filed a five year plan to cure the arrears on her residence. At the time, she owned a car, free and clear, with $7,250 unexempt equity (value in excess of New York's $2,400 auto exemption.) Four years later, the arrears had been paid off and the debtor converted to Chapter 7. The car had significantly depreciated, of course, so the Chapter 7 trustee wanted from the debtor the equivalent of the unexempt value of the car when the case was originally filed, not on the conversion date. Buffalo Judge Carl Bucki ruled against the trustee, stating that, upon conversion, the asset of the bankruptcy estate is the asset as it exists when the case is converted.

The court stated on page 3 of the decision as follows: Section 348(f)(1)(A) of the Bankruptcy Code states generally that when a case under chapter 13 is converted to another chapter, "property of the estate in the converted case shall consist of property of the estate, as of 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." For purposes of administration, therefore, the chapter 7 trustee may treat an asset as property of the estate if it satisfies two conditions.2 First, it must have been property of the estate as of the date of filing. Second, it must remain in the debtor's possession or control on the date of conversion.

Therefore, the Chapter 7 trustee was only entitled to the unexempt equity in the vehicle, if any, as of the time of conversion.

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