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In re Markosian

United States Bankruptcy Appellate Panel For the Ninth Circuit

March 12, 2014

In re: ARA MARKOSIAN and ANAIT MARKOSIAN, Debtors.
v.
ARA MARKOSIAN and ANAIT MARKOSIAN, Appellees CAROL W. WU, Trustee, Appellant, Bankruptcy No. 09-50778-ASW

Argued and Submitted, San Francisco, California February 20, 2014.

Appeal from the United States Bankruptcy Court for the Northern District of California. Bk. No. 09-50778-ASW. Honorable Arthur S. Weissbrodt, Bankruptcy Judge, Presiding.

Johnson C.W. Lee, Esq., argued for appellant.

Carol W. Wu, Chapter 7 trustee; Drew Henwood, Esq., argued for appellees Ara and Anait Markosian.

Before: JURY, KIRSCHER, and DUNN, Bankruptcy Judges.

OPINION

Page 274

JURY, Bankruptcy Judge:

Ara and Anait Markosian (collectively, Debtors) filed a chapter 7[1] petition which they converted to chapter 11 and then reconverted to chapter 7. After reconversion to chapter 7, Mr. Markosian received a bonus from his employer of over $102,000 for services rendered while the chapter 11 case was pending. Debtors turned over the bonus to appellant, Carol W. Wu, the chapter 7 trustee, and filed a motion to compel the trustee to return it to Debtors. The bankruptcy court granted Debtors' motion, finding that although the bonus constituted earnings and were property of Debtors' chapter 11 estate under § 1115(a)(2), the bonus reverted to them upon conversion of Debtors' case to chapter 7. This appeal followed.

We address an issue of first impression in this Circuit: whether an individual debtor's chapter 11 postpetition earnings which are property of the estate under § 1115 revert to him or her upon a subsequent conversion to chapter 7. As a matter of statutory interpretation, we conclude that they do and AFFIRM.

I. FACTS

On February 7, 2009, Debtors filed a chapter 7 petition. The United States Trustee moved to dismiss their case for abuse based on Debtors' high income and their ability to pay their creditors. In response, Debtors converted their case to chapter 11 on February 11, 2010. More than two years later, Debtors were unable to confirm a plan because Mrs. Markosian had lost her job. Debtors reconverted their case to chapter 7 on March 5, 2012.

In April 2012, Mr. Markosian received $102,498.42[1] from his employer for personal services provided while Debtors' case was still under chapter 11. Debtors turned over the bonus to the trustee and subsequently filed a motion to determine their interest in it. The bankruptcy court denied Debtors' motion without prejudice in order for Debtors to file a new motion to address whether the bonus was property of their chapter 11 estate pursuant to § 1115(a)(2), and if so, whether it subsequently became property of their chapter 7 estate.

Page 275

Debtors then filed a motion to compel trustee to return the bonus to them as either partially exempted property of the bankruptcy estate or as property excluded from the chapter 7 ...


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