Chapter 12 Debtors Not Required to Pay Creditors Windfall Obtained When Sales Price of Land Exceeded Plan Valuation by $100,000.

In the second year of their Chapter 12 bankruptcy plan, the debtors sold-off 396.47 acres of a 458-acre tract of land for $295,576. The debtors had been allowed to retain the land under the plan as a potential source of income to fund the plan. The sales price exceeded by more than $100,000 the value established for the entire 458-acre tract at the time the debtors’ Chapter 12 plan was approved by the court. After paying the costs of the sale, claims secured by the land, taxes, and other expenses, the debtors were left with $35,341.59 and the rest of the land. Unpaid creditors sought distribution of the windfall to them. The court denied their request, ruling that the provisions of the confirmed plan were binding on the debtors and their creditors. The court stated that estate property vests in the debtor—and thus leaves the bankruptcy estate—upon confirmation of the plan. Thus, it is "free and clear of any claim or interest of any creditor provided for by the plan." The court also found that the proceeds were not “disposable income” because post-petition disposable income does not include prepetition property or its proceeds. As such, the debtors had no obligation to pay the proceeds to the creditors. In re Smith, No. 10-50096-rlj-12, 2014 Bankr. LEXIS 3335 (Bankr. N.D. Tex. Aug. 6, 2014).

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