Armstrong v. Harris (In re Harris)

886 F.2d 1011, 105 B.R. 1011
CourtCourt of Appeals for the Eighth Circuit
DecidedSeptember 26, 1989
DocketNo. 88-5444
StatusPublished
Cited by16 cases

This text of 886 F.2d 1011 (Armstrong v. Harris (In re Harris)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Armstrong v. Harris (In re Harris), 886 F.2d 1011, 105 B.R. 1011 (8th Cir. 1989).

Opinion

MAGILL, Circuit Judge.

The trustee in bankruptcy appeals the district court’s decision affirming the bankruptcy court’s order allowing the debtors’ claim for exemption of postpetition, post-conversion proceeds from the leasing of estate farmland. We reverse.

I.

The debtors, George R. and Sharon A. Harris, filed a voluntary chapter 11 petition on November 17, 1986. Among their assets at the time of petition were several parcels of farmland mortgaged to a bank. The debtors had no equity in the farmland and did not claim the land as exempt. On November 19, 1987, the debtors voluntarily converted their case to chapter 7. Having obtained relief from the automatic stay, the bank commenced foreclosure proceedings which led to a foreclosure sale of the farmland in March 1988. On March 7, 1988, the trustee filed notice of intent to lease the farmland for the 1988 crop season. The debtors submitted the highest bid and began leasing the land. On May 3, 1988, the debtors amended their schedule of exemptions to claim as exempt the rights of redemption in the farmland. By so doing, they sought to exempt $7,860 of the rental proceeds pursuant to N.D.Cent.Code §§ 28-22-03 and 28-22-03.1 (Supp.1989).1 The trustee objected to the exemption claim.

The bankruptcy court allowed the exemption based upon rights of redemption in the farmland. On appeal, the district court concluded that the exemption could not be allowed on that ground.2 The district [1013]*1013court, however, went on to hold that the substance of the exemption claim was valid because the lease proceeds represent newly found property, and therefore the debtors had a right to amend their schedule of exemptions any time before the close of the case to claim an allowable exemption in the property.

On appeal to this court, the trustee argues that the debtors may not exempt the rental proceeds because (1) where a case is converted from chapter 11 to chapter 7, exemption rights are determined as of the chapter 11 filing date, and on that date the debtors had no right to the rents under state redemption law; (2) the rental proceeds are not newly found property because they did not exist unbeknownst to the debtors at the time of the chapter 11 petition, but rather arose postpetition; (3) the debtors had no equity in the underlying farmland at the time of the chapter 11 petition; and (4) N.D.Cent.Code §§ 28-22-03 and 28-22-03.1 do not create an exemption in postpetition rents.

II.

The debtors’ farmland became property of the bankruptcy estate upon the filing of their voluntary chapter 11 petition. 11 U.S.C. §§ 541(a)(1) and 301. The land remained property of the estate after conversion of the case to chapter 7 without confirmation of a reorganization plan. 11 U.S.C. § 348(a) (conversion has no effect on commencement of case); Koch v. Myrvold, 784 F.2d 862, 863 (8th Cir.1986) (per curiam) (property of estate determined on basis of chapter 11 petition date, not date of conversion to chapter 7). Section 541(a)(6) provides that property of the estate includes “[p]roceeds, product, offspring, rents, or profits of or from property of the estate.” Thus, redemption rights that attached to the farmland postpetition are property of the estate, see In re Rigden, 795 F.2d 727, 731 (9th Cir.1986), as are rental proceeds stemming from those redemption rights. The question presented in this case is whether 11 U.S.C. § 522(b)(2)(A) permits the debtors to withdraw the postpetition, postconversion farmland rental proceeds from the property of the estate as exempt property.

Under § 522(b)(2)(A), a debtor may exempt from property of the estate any property that is exempt under nonbank-ruptcy federal law, or state or local law “that is applicable on the date of the filing of the petition.” Section 348(a) provides that conversion of a case from one chapter to another “does not effect a change in the date of the filing of the petition.” The language of these sections indicates that the date of petition controls exemption eligibility. In In re Lindberg, 735 F.2d 1087 (8th Cir.), cert. denied sub nom. Armstrong v. Lindberg, 469 U.S. 1073, 105 S.Ct. 566, 83 L.Ed.2d 507 (1984), this court concluded that in a case converted from chapter 13 to chapter 7, the above statutory language is in tension with other Bankruptcy Code sections and Bankruptcy Rules. After examining the purpose behind a debtor’s designation of exemptions in a chapter 13 case, this court held that the date of conversion controls what exemptions may be claimed from estate property. Id. at 1089-91. By contrast, the Fifth Circuit held in In re Williamson, 804 F.2d 1355, 1359 (5th Cir.1986), that “where a case is converted from chapter 11 to chapter 7, exemptions are determined as of the chapter 11 filing date.”3 The Fifth Circuit declined to say that Lindberg is wrong, id. at 1361-62, but rather found that the considerations identified by Lind-[1014]*1014berg as offsetting the language of §§ 522(b)(2)(A) and 348(a) “are both fewer and weaker in the context of chapter 11.” Id. at 1361. We need not decide here whether Williamson is correct because the debtors in this case had no right to the rental proceeds under state redemption law at either the date of their chapter 11 petition or the date of conversion to chapter 7. In addition, we conclude that the notion of “newly found property” relied on by the district court does not support allowance of the claimed exemption in this case regardless of whether the date of petition or conversion controls exemption eligibility.

Under North Dakota law, a debtor is entitled to rents from real property during the redemption period. N.D.Cent.Code § 28-24-11. This right to rents begins on the date of the execution or foreclosure sale of the subject property. Id. In the instant case, the foreclosure sale took place well after the chapter 11 petition and conversion of the case to chapter 7. Thus, a right to rents from the farmland based upon state redemption law did not arise until after both the petition and conversion. Accordingly, the district court properly concluded that the debtors’ exemption claim could not be founded on redemption rights.

The debtors argue that they possessed a right to rents from the farmland at the time of their chapter 11 petition because North Dakota case law entitles mortgagors to rents prior to foreclosure in the absence of a valid assignment of the rents.

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Bluebook (online)
886 F.2d 1011, 105 B.R. 1011, Counsel Stack Legal Research, https://law.counselstack.com/opinion/armstrong-v-harris-in-re-harris-ca8-1989.