UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

COVINGTON DIVISION

IN RE:

GARY L. DEAN

SHEILA A. DEAN CASE NO. 99-20705

DEBTOR

MEMORANDUM OPINION AND ORDER

The matter before the Court here is a dispute between the debtor and the Chapter 7 trustee. The controversy regards funds the debtor paid post-petition to the Chapter 13 trustee according to the terms of the proposed plan up to the point the debtor chose to convert to Chapter 7 proceeding.

After filing this Chapter 13 proceeding on May 3, 1999 and proposing a plan, the debtors elected to convert to a proceeding under Chapter 7 on September 13, 1999. No plan had been confirmed in their Chapter 13 proceeding. The funds in question are in the amount of $2,500.00 consisting of post-petition payments made pursuant to the Chapter 13 plan which, upon conversion, the Chapter 13 trustee turned over to the Chapter 7 trustee. The issue is whether funds paid post-petition, pre-confirmation to the Chapter 13 trustee are part of the Chapter 7 estate upon conversion or whether the funds must be returned to the debtors.

Prior to the enactment of the Bankruptcy Reform Act of 1994 (H.R. 51160), this issue was confusing and had created a split among the circuits. Some courts had held that property of the estate in a case converted from Chapter 13 to Chapter 7 does not include post-petition, pre-conversion earnings and that such property goes to the debtor. See In re Luna, 73 B.R. 999 (N.D.Ill. 1987); In re Payne, 88 B.R. 818 (Bankr.E.D.Tenn. 1988). Other courts had held such earnings to be property of the estate. See In re Brownlee, 93 B.R. 662 (Bankr.S.D.Iowa 1988)(from Chapter 12 to Chapter 7); In re Wanderlich, 36 B.R. 710 (Bankr.W.D.N.Y. 1984);

However, since the 1994 Amendments to the Bankruptcy Code, Public law No. 103-394, '311 (codified as 11 U.S.C. '348(f)), Congress has made clear that Athe estate in a converted case consists only of property of the estate as of the date of the original filing that remains in the possession of the debtor on the date of conversion.@ In re Sandoval, 103 F.3d 20, 23 (5^th Cir. 1997); see also Young v. Key Bank of Maine, et al (In re Young), 66 F. 3rd 376 (1^st Cir. 1995). This Court likewise stated in In Re Hardin, 200 B.R. 312 (Bankr.E.D.Ky. 1996) that the 1994 Amendments have made clear that the debtor=s payments from post-petition earnings pursuant to a Chapter 13 plan are not part of the Chapter 7 estate upon conversion.

11 U.S.C. '541 states that the bankruptcy estate is created upon the commencement of a case and identifies what is to comprise property of the estate. For Chapter 13, 11 U.S.C. '1306 expands the estate beyond 11 U.S.C. '541 to include Aall property of the kind specified in such section [541] that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted...@ 11 U.S.C. '1306(a)(1). Finally, 11 U.S.C. '348(f)(1)(A) provides that in a converted case the estate consists only of property as of the date of the petition. Therefore, the funds in question are not property of the Chapter 7 estate.

Accordingly, it is hereby ORDERED that the trustee herein pay the funds in question to the debtors in this proceeding.

Dated this ____ day of January, 2000.

BY THE COURT

_________________

JUDGE

COPIES TO:

Chapter 7 Trustee

Chapter 13 Trustee

Debtor

Michael Plummer, Esq.