Riverside Bankruptcy Trustee Steven Speier had a case the other day that was converted from chapter 13. In the chapter 13 the debtors had automobiles that had debt against them. As the chapter 13 case paid off, the autos paid off. When the case was converted the autos were fully paid off. So when the chapter 7 trustee got the case the vehicles had equity.
The attorney handling the case saw this and did an amendment to protect what he could in equity. However there were no exemptions left to pay for all the now exposed equity in the autos. The debtors attorney realized this and as soon as he sat in front of the trustee he explained that the debtors wanted to “buy back” the equity in the vehicles from the bankruptcy estate. The trustee was amenable to this arrangement and said he would send his agent to inspect the autos so a fair price could be found for the autos.
The matter was continued to allow the parties time to work out the details.
Practice Pointer: When converting a case from chapter 13 to chapter 7, re-examine the exemptions. The increase in equity may go to the new chapter 7 trustee. This may be a big issue with your clients as now they will have to “buy back” assets from the trustee if they hope to keep them.