In re Hillis (20-70372)

The Debtors in this case had previously motioned to the Court and received permission to sell two loaders and a lawn mower in satisfaction of a claim by the Creditor, Southern Pine Credit Union. In exchange for the proceeds from the sale, the Creditor would release the liens on the three pieces of equipment and a Nissan Armada owned by the Debtors. The Chapter 13 Trustee consented to the Debtors’ motion to sell. After the order of sale was entered but before the proceeds were received by the Creditor, the Debtors converted their case to Chapter 7. Shortly after the conversion, the Creditor filed a motion to relief from the stay. The proceeds have since been received.

The Chapter 7 Trustee investigated and contests the validity of the liens on the two loaders and the lawn mower, but not the Nissan Armada, and has demanded turnover of the sale proceeds as part of the Chapter 7 estate. The Trustee responded to the Creditor’s motion for relief from the stay on those grounds. The Debtors filed a motion for turnover against the Creditor requesting clear title be transferred on the Armada because the proceeds had been paid in accordance with the Court’s previous order to sell. The Creditor filed a motion for relief from order claiming the Chapter 7 Trustee is barred by res judicata and, in the alternative, requesting relief from the Court’s order requiring the liens be released.

The Court found the proceeds from the sale are part of the Chapter 7 estate under § 348(f)(1)(A), but the Trustee is barred by res judicata from contesting the liens because the Chapter 13 Trustee consented to validity of the liens in the Debtors’ motion to sell.

Wednesday, January 11, 2023