Anyone living in New Jersey knows the reality: real estate is expensive and only getting more so. While that can make buying a home difficult, it also means many homeowners experience significant home-value appreciation when they sell. But what happens when you are in a pending Chapter 13 bankruptcy and sell your property for more than it was worth when the plan was confirmed?
Key question: In a Chapter 13 case filed or confirmed in New Jersey, who gets that extra gain — the debtor (homeowner) or the Chapter 13 trustee? The answer is: it depends. Different courts have taken different positions.
The Legal Framework
To understand the issue, it helps to know the three main provisions of the Bankruptcy Code that come into play:
- 11 U.S.C. § 1306(a)(1) & (2) — property of the estate in a Chapter 13 case includes property the debtor acquires after the bankruptcy case begins but before the case is closed, dismissed, or converted, as well as earnings from the debtor’s services during that period.
- 11 U.S.C. § 1327(b) — unless the plan or confirmation order says otherwise, after confirmation all property of the estate vests in the debtor.
- 11 U.S.C. § 1327(c) — after vesting, the property is free and clear of claims of creditors provided for by the plan.
Reconciling those provisions has produced several judicial theories — among them “estate preservation,” “estate termination,” “estate transformation,” and “estate replenishment.” Below we discuss two of those in more detail.
Two Competing Theories: Who Keeps the Upside?
Estate Preservation Approach
Under this theory, appreciation in value of property (e.g., a home) remains part of the bankruptcy estate. One key case is In re Barbosa, which held that post-confirmation appreciation belonged to the trustee. The court treated the appreciation as a separate asset of the estate.
In such cases, under the estate-preservation model, a debtor’s home might continue to generate value that the trustee must account for and distribute to creditors.
Estate Replenishment Approach
On the other side is the approach adopted by some courts — including in New Jersey — that say once assets vest in the debtor at confirmation, post-confirmation appreciation belongs to the debtor. A leading case for that view is In re Larzelere. The court explained that appreciation is not new property independent of the property itself; you cannot sell “just the appreciation” apart from the home. As such, once the property has vested, the appreciation is the debtor’s. The trustee does not get the gain, and the appreciation is not treated as disposable income for the best-efforts test.
What This Means for Homeowners in New Jersey — and for Your Case
For homeowners in New Jersey who filed or confirmed a Chapter 13 plan, this is good news — although no across-the-board guarantee. Unless your plan or confirmation order includes special language stating that post-confirmation appreciation remains property of the estate, you can argue the appreciation belongs to you.
Given the current New Jersey real-estate market — where home values are rising — this could make a real difference. If you sell your home during or shortly after a Chapter 13 and the value has increased, you may retain that gain under the estate-replenishment view.
Key Takeaways & Action Steps
- If you are in a Chapter 13 bankruptcy in New Jersey and your home has increased significantly in value, or you plan to sell: you must evaluate whether the appreciation might go into the bankruptcy estate.
- Review your confirmation order and plan language. Does it explicitly reserve post-confirmation appreciation for the estate? If not, under the Larzelere line of reasoning your position is stronger.
- Consult a knowledgeable New Jersey bankruptcy attorney (such as our team at Scura) to analyze how the case law applies to your facts — including timing of sale, plan confirmation date, and vesting date.
- Document the home’s value at confirmation and any later sale price. Evidence of appreciation may become important if the trustee or a creditor raises an issue.
- Keep in mind: because courts disagree, your strategy must be tailored. What your local bankruptcy judge has done matters.
Why Work With Scura’s NJ Bankruptcy Lawyers?
At Scura, Wigfield, Heyer, Stevens & Cammarota, LLP, our bankruptcy team advises individuals and families throughout New Jersey on Chapter 7, Chapter 11 and Chapter 13 filings. With multiple offices (Wayne, Hoboken, Hackensack, Newark, Secaucus & Clifton) and decades of experience, we understand how real-estate developments in New Jersey intersect with bankruptcy strategy.
If you’re a homeowner facing or in Chapter 13 bankruptcy, we can help you understand how rising home values may impact your case — and help you make the right decision moving forward. Contact us today for a free consultation.
