Available at (ABI Membership Required): Chapter 13 Sales: Estate Property and Co-Owned Assets
Summary:
E. Philip Groben’s September 2026 ABI Journal article, “Chapter 13 Sales: Estate Property and Co-Owned Assets,” addresses two deceptively complicated questions: when a Chapter 13 debtor needs court approval to sell property, and whether a Chapter 13 debtor can use 11 U.S.C. § 363(h) to force the sale of property co-owned with a nondebtor.
For North Carolina practitioners, the second question is especially important because the Eastern District of North Carolina has moved from the debtor-friendly reasoning of In re Guy, 587 B.R. 475 (Bankr. E.D.N.C. 2018) to the more restrictive holding in In re Sliwinski, 668 B.R. 841 (Bankr. E.D.N.C. 2025).
That leaves a practical mismatch: § 363(h) may be the best way to realize value from co-owned property, but in the EDNC the Chapter 13 debtor may not be the person permitted to invoke it.
The more interesting question, then, is not simply whether Sliwinski is correct. It is what debtors, Chapter 13 trustees, and their attorneys should do next.
First: Is the Property Still Property of the Estate?
Before getting to § 363(h), counsel must determine whether the property is still property of the bankruptcy estate.
Section 1306 broadly includes post-petition property and earnings in the Chapter 13 estate, while § 1327(b) provides the opposite default at confirmation: unless the plan or confirmation order provides otherwise, property of the estate vests in the debtor.
Courts have developed several approaches for reconciling those provisions—estate termination, estate preservation, estate transformation, and estate replenishment. Groben correctly emphasizes that the answer matters before counsel reflexively files a § 363 motion.
For Fourth Circuit practitioners, Trantham v. Tate, 112 F.4th 223 (4th Cir. 2024) makes the issue especially important. Trantham confirms that the statutory vesting choice is meaningful and that Chapter 13 debtors have substantial authority through their plans to determine what happens to estate property at confirmation.
That authority is sometimes resisted by bankruptcy courts that understandably prefer continuing supervision over property in “their” cases, but Trantham makes clear that administrative preference does not erase the debtor’s statutory choices.
That also fits comfortably with Professor Jonathan Seymour’s argument in The Limited Lifespan of the Bankruptcy Estate: Managing Consumer and Small Business Reorganizations, 37 Emory Bankr. Dev. J. 1 (2020). Prof. Seymour argues that continued estate ownership should ordinarily serve an actual bankruptcy purpose rather than leaving all of a debtor’s property under bankruptcy supervision for years merely because a Chapter 13 case remains open.
A potential § 363(h) sale may be exactly such a purpose.
The answer, however, need not be to keep everything in the estate. A Chapter 13 plan might allow ordinary property to revest while specifically retaining a co-owned parcel when there is a concrete reason to preserve an estate interest in that property.
The § 363(h) Problem
Section 363(h) allows the trustee, under specified conditions, to sell both the bankruptcy estate’s interest and the interest of a nondebtor co-owner.
Among other things, the trustee must show that partition in kind is impracticable, that sale of the estate’s undivided interest alone would realize significantly less than sale of the whole, and that the benefit to the estate outweighs the detriment to the co-owner.
The problem for Chapter 13 debtors comes from § 1303.
Congress expressly gave Chapter 13 debtors the trustee’s powers under §§ 363(b), (d), (e), (f), and (l), but did not include § 363(h).
The minority position, reflected in Matter of Janoff, Rishel v. Rishel, and In re Belyea, reasons that § 363(h) operates through § 363(b), which the debtor does possess.
The majority view, represented by In re Wrublik and In re Andrade, reads the omission literally: Congress listed the § 363 powers Chapter 13 debtors receive and left subsection (h) out.
The EDNC has now adopted that latter view.
Guy and Sliwinski
The local history makes this especially interesting.
In In re Guy, the EDNC favorably cited Belyea and indicated that a Chapter 13 debtor could use § 363(h). But Guy arose in the context of stay relief and a proposed partition proceeding. It did not squarely adjudicate a debtor-filed § 363(h) adversary proceeding.
That distinction became decisive in Sliwinski.
There, Judge McAfee directly addressed whether a Chapter 13 debtor could invoke § 363(h) and held that the debtor could not. The court followed Wrublik and Andrade and treated that position as the majority rule. Groben similarly identifies Sliwinski as the recent EDNC adoption of that approach.
So after Sliwinski, an EDNC debtor should not assume that Guy supplies authority to file a § 363(h) complaint directly.
But that does not mean § 363(h) disappears from Chapter 13.
Ask the Trustee to Use the Power Congress Gave the Trustee
Sliwinski begins from a simple textual premise:
§ 363(h) gives the power to the trustee.
That suggests the least doctrinally adventurous solution.
If a § 363(h) sale would materially benefit the estate, the debtor should ask the Chapter 13 trustee to bring the action.
That request should consist of considerably more than the debtor’s preference for a sale. Counsel should provide the trustee with a genuine economic analysis: likely sale price, liens, ownership percentages, exemptions, closing costs, anticipated litigation expenses, expected net recovery, likely distribution to creditors, and what would happen if only the debtor’s fractional interest were sold.
Counsel should also explain why bankruptcy is preferable to the alternatives, including consensual sale, refinance, buyout, or state-court partition.
That matters because standing Chapter 13 trustees are not Chapter 7 liquidating trustees.
Their offices are designed principally to administer thousands of repayment plans, collect payments, and make distributions—not to conduct contested real-estate litigation. A § 363(h) adversary proceeding can involve discovery, appraisals, expert testimony, depositions, family-law complications, and litigation against a former spouse, relative, or other co-owner.
A trustee can therefore have perfectly legitimate reasons to hesitate even when the sale theoretically creates value.
But that institutional concern suggests a possible solution rather than ending the discussion.
The Trustee Does Not Have to Supply All of the Litigation Resources
A Chapter 13 trustee who concludes that a § 363(h) action would benefit the estate but understandably does not want to commit scarce trustee-office resources could seek court approval to employ special counsel for the litigation.
And in an appropriate case, that special counsel could potentially be the debtor’s existing attorney.
Section 327(e) permits a trustee, with court approval, to employ for a specified special purpose an attorney who has previously represented the debtor, provided that the employment is in the best interests of the estate and that the attorney does not hold or represent an interest adverse to the debtor or estate with respect to the particular matter for which the attorney is employed.
That can make considerable practical sense.
Suppose debtor’s counsel has already investigated the title, understands the ownership history, has dealt with the co-owner, has obtained valuation information, and knows why voluntary sale, partition, or sale of only the debtor’s fractional interest will not solve the problem.
If the trustee agrees that § 363(h) should be pursued, requiring the trustee either to personally supply the litigation work or to hire an entirely new attorney who must learn the case from scratch can needlessly increase costs.
Subject to court approval and appropriate ethical safeguards, the trustee instead might employ debtor’s counsel for the limited purpose of prosecuting the § 363(h) adversary proceeding on behalf of the estate.
That changes the practical calculus substantially.
The trustee would remain the plaintiff and retain control of the estate’s statutory power. The debtor’s attorney would provide the litigation labor as court-approved special counsel. Compensation could be structured under §§ 327 and 328 as appropriate and remain subject to bankruptcy-court oversight.
This is not semantic relabeling of an action actually belonging to the debtor.
The crucial distinction after Sliwinski is that the trustee remains the party exercising § 363(h). Debtor’s counsel would litigate as specially employed counsel for the trustee or estate for that discrete purpose, not as the debtor independently exercising a trustee-only statutory power.
That approach is much cleaner than trying to manufacture debtor standing that Sliwinski says § 1303 does not provide.
Ethical Safeguards Matter
None of that means the debtor’s existing attorney can automatically represent both sides of the equation.
Section 327(e) itself requires that special counsel not hold or represent an interest adverse to the debtor or estate with respect to the particular matter.
That requires a genuine conflict analysis.
The debtor and estate will often be aligned in wanting to maximize the value of the property, but their interests are not necessarily identical.
The trustee might want a sale on terms the debtor dislikes. The debtor may claim exemptions. The parties may disagree over disposition of proceeds. The debtor may want to protect a spouse, former spouse, parent, child, or other co-owner for reasons that are entirely understandable personally but inconsistent with maximizing the estate’s recovery. The trustee may favor settlement terms debtor’s counsel would otherwise advise the debtor not to accept.
There are also ordinary professional-responsibility questions concerning loyalty, confidentiality, informed consent, and what happens if initially aligned interests diverge during the litigation.
Any employment order should therefore identify the scope of the special representation carefully, including who controls the litigation and settlement, how compensation will be paid, what information may be shared, how conflicts will be addressed, and when the special representation terminates.
In some cases, those protections may make employment of debtor’s counsel appropriate.
In others, independent special counsel will be necessary.
The point is not that debtor’s counsel automatically becomes estate counsel. It is that a trustee’s legitimate concern about expending limited office resources does not necessarily require abandoning a valuable § 363(h) action.
Section 363(i) Also Has to Be Part of the Economics
Any meaningful economic analysis must also account for the nondebtor co-owner’s statutory rights.
Section 363(i) gives a co-owner whose interest is sold under § 363(h) the opportunity to purchase the property at the price at which the sale is to be consummated. Section 363(j), in turn, requires distribution to the co-owner of the appropriate portion of the proceeds, less specified costs and expenses.
That may provide an off-ramp from the dispute. A co-owner opposed to sale to a third party might ultimately purchase the property instead.
But it also affects the economics of the proposed litigation.
The trustee and special counsel should therefore analyze not merely gross equity but the likely net recovery after the co-owner’s statutory rights, litigation expenses, transaction costs, and possible settlement or buyout.
And because § 363(h) separately requires that the benefit to the estate outweigh the detriment to the co-owner, the court is required to look beyond the simple proposition that there is equity available.
The § 1325(a)(4) Irony: A Sale the Debtor Cannot Bring May Still Determine What the Debtor Must Pay
There is an additional wrinkle that makes the consequences of Sliwinski considerably more interesting.
Section 1325(a)(4)—the “best interests of creditors” or hypothetical liquidation test—requires a Chapter 13 debtor to provide unsecured creditors with at least the value they would receive if the debtor’s estate were liquidated under Chapter 7 on the effective date of the plan.
That hypothetical is important.
The comparison is not between what the Chapter 13 debtor personally has authority to liquidate and what creditors receive under the plan. The comparison is with what would happen in a Chapter 7 case.
And a Chapter 7 trustee unquestionably has § 363(h) authority.
So Sliwinski should not ordinarily allow a Chapter 13 debtor to reduce the hypothetical liquidation value of jointly owned property merely by arguing:
“I cannot bring a § 363(h) action in Chapter 13, therefore this property should not count in the liquidation test.”
Section 1325(a)(4) asks what a hypothetical Chapter 7 trustee could accomplish, not what the Chapter 13 debtor can accomplish.
In re Shaw illustrates the point directly. There, the debtor argued that jointly held real property should have a zero liquidation value because the debtor could not force a partition under applicable nonbankruptcy law. The court instead turned to § 363(h), explaining that the proper inquiry was whether the hypothetical Chapter 7 trustee could sell the jointly owned property using the trustee’s federal bankruptcy powers.
And this is not a new idea. In In re Weiss, 4 B.R. 327 (Bankr. S.D.N.Y. 1980), the Chapter 13 trustee objected to confirmation because a hypothetical Chapter 7 trustee could potentially sell entireties property under § 363(h), generating more for creditors than the proposed Chapter 13 plan provided. The court held that confirmation required evidence not merely of market value, but of the value that would actually pass to creditors after the projected costs and expenses of a § 363(h) sale and the distribution owed to the nondebtor spouse under § 363(j).
For EDNC practitioners, however, the particularly useful case is In re Chandler, 148 B.R. 13 (Bankr. E.D.N.C. 1992).
Judge Small described the precise issue as whether the Chapter 13 plan satisfied § 1325(a)(4)—whether unsecured creditors would receive at least what they would receive in Chapter 7—and considered the potential consequences of a hypothetical § 363(h) sale of the debtors’ tenancy-by-the-entirety residence. The court ultimately did not have to decide the full distribution consequences because the Chandlers proposed to pay their joint creditors in full.
That becomes especially important after Sliwinski because it can produce an apparent one-way ratchet.
A Chapter 13 debtor might be told:
“A hypothetical Chapter 7 trustee could use § 363(h) to produce $75,000 for unsecured creditors, so § 1325(a)(4) requires your plan to provide at least that value.”
But Sliwinski simultaneously tells the debtor:
“You cannot personally use § 363(h) to sell the property and generate the money necessary to make those payments.”
That is an awkward asymmetry.
For purposes of determining how much the debtor must pay, the liquidation test may assume the availability of the Chapter 7 trustee’s § 363(h) powers.
For purposes of actually turning the property into money in Chapter 13, the debtor may lack those same powers.
That does not necessarily lower the § 1325(a)(4) requirement. If anything, it makes the practical problem more acute.
But Hypothetical Liquidation Does Not Mean Hypothetical Frictionless Liquidation
There is an equally important qualification.
A trustee objecting under § 1325(a)(4) should not simply take the fair market value of the property, subtract liens and exemptions, multiply the remainder by the debtor’s percentage ownership, and call that the liquidation value.
If the proposed Chapter 7 liquidation depends upon § 363(h), then the hypothetical trustee must actually be able to satisfy § 363(h).
That means considering whether partition is impracticable, whether sale of the estate’s undivided interest alone would realize significantly less, and—often most importantly—whether the benefit to the estate outweighs the detriment to the nondebtor co-owner. Shaw itself recognized the distinction between having property in the estate and being able to sell the entire jointly owned parcel under § 363(h). (Western District Court VA)
The calculation must also account for what a Chapter 7 trustee would actually net after:
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consensual or litigation expenses necessary to obtain the § 363(h) sale;
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broker commissions and closing costs;
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Chapter 7 trustee compensation;
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attorney and expert fees;
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valid exemptions;
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the nondebtor co-owner’s share under § 363(j);
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applicable tax consequences;
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and any other administrative expenses senior to general unsecured creditors.
Weiss expressly required evidence of the projected costs and expenses of the § 363(h) sale and the amount that would be distributed to the co-owner under § 363(j), rather than simply treating gross equity as the § 1325(a)(4) number. (CaseMine)
And if the detriment to the nondebtor co-owner would prevent a sale under § 363(h)(3), then the hypothetical Chapter 7 trustee cannot simply assume that sale anyway.
In other words:
The inability of the Chapter 13 debtor to use § 363(h) ordinarily should not eliminate § 363(h) value from the liquidation test—but neither can a trustee invoke § 1325(a)(4) as though a hypothetical § 363(h) sale were costless, automatic, and guaranteed.
It is a hypothetical liquidation, not a hypothetical miracle.
In North Carolina, Entireties Property Adds Another Layer
For North Carolina debtors, jointly owned marital property can create still another issue because the § 1325(a)(4) analysis must consider the scope of the tenancy-by-the-entirety exemption and which creditors could actually benefit from a hypothetical liquidation.
That was the problem confronting Judge Small in Chandler. The court recognized the significance of a possible § 363(h) sale but also emphasized that the presence of joint creditors did not necessarily mean the debtor lost every benefit of the entireties exemption. Because the plan paid the joint creditors in full, the court did not need to decide whether individual unsecured creditors would share in remaining § 363(h) proceeds. (Legal Calculators)
So for a North Carolina liquidation analysis, “there is equity” is only the beginning.
The real questions may include:
What form of ownership exists?
Which claims are joint and which are individual?
What portion is exempt?
Could a hypothetical Chapter 7 trustee actually satisfy § 363(h)?
What would the litigation and sale cost?
What would the co-owner receive under § 363(j)?
And after all of that, which unsecured creditors would actually receive the remaining proceeds?
Those are the numbers § 1325(a)(4) cares about.
This Gives the Chapter 13 Trustee Another Reason to Cooperate
This interaction also strengthens the practical case for trustee involvement in a Sliwinski situation.
Suppose the Chapter 13 trustee argues at confirmation that a hypothetical Chapter 7 § 363(h) sale creates $75,000 of liquidation value and therefore requires a substantially larger unsecured dividend.
There is at least some tension if that same trustee then takes the position that an actual § 363(h) sale is not something the Chapter 13 trustee will consider facilitating, even though the debtor is prohibited from doing it independently.
That does not necessarily create a legal duty to sue.
The actual Chapter 13 trustee may have valid reasons why a sale that works on paper under the § 1325(a)(4) hypothetical is not worth pursuing in the real case.
But if the trustee relies on a hypothetical § 363(h) sale to increase the debtor’s required plan distribution, it is entirely reasonable for debtor’s counsel to ask the trustee:
If this property really has that much net liquidation value, why should we not actually realize it?
And if the answer is simply that the standing trustee lacks the resources to conduct contested real-estate litigation, that circles directly back to the possibility of employing special counsel under § 327(e).
The § 1325(a)(4) issue therefore does more than complicate the arithmetic.
It may supply the strongest practical reason for the debtor and Chapter 13 trustee to work together on an actual § 363(h) strategy rather than treating Sliwinski as the end of the discussion.
Can the Debtor Compel the Trustee?
That remains much harder.
A Chapter 13 trustee possesses § 363(h) authority, but possessing a statutory power is not the same thing as having a mandatory duty to exercise it whenever the debtor asks.
Section 1302 notably does not impose the Chapter 7 trustee’s § 704(a)(1) duty to “collect and reduce to money the property of the estate.”
That omission makes it difficult to convert the trustee’s § 363(h) power into an enforceable obligation to liquidate.
There may be an extraordinary case in which a refusal to pursue an obviously valuable transaction raises broader questions about estate administration—particularly if the trustee has simultaneously relied on that same hypothetical sale to establish the § 1325(a)(4) liquidation floor. But a motion compelling a Chapter 13 trustee to prosecute § 363(h) should not presently be described as an established remedy.
The special-counsel possibility may make that confrontation less necessary.
A trustee whose principal concern is not the merits but the expenditure of trustee-office resources may reasonably view the proposal differently when qualified counsel is prepared, subject to § 327(e), proper compensation, court approval, and conflict protections, to perform the litigation work.
Rule 19 Is Probably Not the Answer
Nor is the better solution for the debtor to file the action first and then attempt to join the Chapter 13 trustee as a necessary or involuntary plaintiff under Civil Rule 19, incorporated by Bankruptcy Rule 7019.
In Cole v. James B. Nutter & Co., 563 B.R. 526 (Bankr. W.D.N.C. 2017), Chapter 13 debtors attempted a similar maneuver after confronting a statutory-standing problem.
The court rejected it.
The basic problem is straightforward: Rule 19 is procedural. It does not create substantive statutory authority that Congress placed elsewhere.
Thus Sliwinski plus Cole makes a debtor-filed complaint followed by compulsory joinder of the trustee a weak route.
Trustee prosecution through properly employed special counsel is doctrinally much cleaner.
Derivative Standing Is an Even Steeper Climb
Derivative standing sounds at first like another possible escape hatch: if the trustee possesses the § 363(h) power but declines to exercise it, perhaps the debtor could obtain authority to prosecute the action derivatively.
In the Fourth Circuit, however, that theory is not merely “unsettled.” It is considerably more doubtful than that description might imply.
In re Baltimore Emergency Services II Corp., 432 F.3d 557 (4th Cir. 2005) did not involve a Chapter 13 debtor. It involved a secured creditor and a committee of unsecured creditors in a Chapter 11 case asserting claims in the place of the debtor-in-possession. The Fourth Circuit emphasized that the Bankruptcy Code does not expressly authorize such derivative actions and described the doctrine as an implicit exception to the Code’s ordinary assignment of estate causes of action.
More importantly, the Fourth Circuit did not embrace the doctrine. It said that whether the Code permits creditor derivative standing was “far from self-evident” and observed that strong arguments existed on both sides. Because the parties had effectively assumed the doctrine existed rather than litigating that threshold question, the court declined to resolve it.
Even assuming derivative standing were theoretically available, the creditors in Baltimore Emergency Services still lost. The court found that they had not established the debtor’s consent and that the bankruptcy court had not made advance findings that the litigation was in the estate’s best interests and necessary and beneficial to fair and efficient administration. The Fourth Circuit warned against permitting creditors to commandeer bankruptcy litigation for their own purposes.
That posture is a long way from a Chapter 13 debtor asking to exercise § 363(h).
The proposed extension would require a court first to recognize derivative standing despite the Fourth Circuit’s skepticism; then extend a doctrine developed principally for creditor or committee actions in Chapter 11 to Chapter 13; and finally use it to permit the debtor to exercise a particular trustee power that § 1303 conspicuously does not confer on the debtor.
That is several doctrinal bridges too far to describe as a practical fallback.
The Third Circuit’s nonprecedential decision in In re Merritt demonstrates the additional problem. Although the Third Circuit recognizes derivative standing in other bankruptcy contexts, it observed that derivative standing had not yet been applied there in Chapter 13 and declined to decide whether Chapter 13 debtors may use it.
And Baltimore Emergency Services contains a practical warning even for someone willing to attempt the argument: do not file first and try to repair standing afterward.
The Fourth Circuit insisted upon the procedural safeguards necessary for derivative standing before allowing the litigation to proceed. A party wanting to test derivative standing in the Fourth Circuit would therefore have a much stronger procedural position by first seeking express court authorization and the necessary findings rather than filing a § 363(h) complaint in the debtor’s name and attempting to cure the defect later.
So derivative standing should probably be viewed as an extraordinary test-case theory rather than routine practitioner advice.
That makes trustee prosecution—with special counsel where appropriate—considerably more attractive.
Could the Chapter 13 Plan Preserve the Path to a Trustee § 363(h) Action?
That brings the analysis back to vesting.
A debtor who anticipates a genuine possibility of a § 363(h) action may want to prevent the relevant property from revesting at confirmation.
After Trantham, that should be a deliberate choice rather than an artifact of form-plan language.
One possible provision would allow most property to revest in the debtor at confirmation while specifically retaining the co-owned property in the bankruptcy estate until voluntary sale, refinance, buyout, partition, completion of a § 363(h) sale, or further court order.
That fits reasonably well with Professor Seymour’s broader view of the Chapter 13 estate.
Professor Seymour’s point is not that property must always leave the estate at confirmation regardless of circumstances. It is that prolonged estate ownership should have an actual bankruptcy purpose.
Preserving an identified co-owned asset because the trustee may need the estate’s interest to invoke § 363(h) supplies such a purpose.
The § 1325(a)(4) analysis may provide an additional reason for doing so. If the confirmed plan must provide unsecured creditors with value based on a hypothetical Chapter 7 § 363(h) liquidation, preserving the actual ability to monetize that same property during Chapter 13 may be important to the feasibility of the plan itself.
But Thiel Is Suggestive, Not a Holding
In re Thiel provides an intriguing clue about such drafting, but it should not be oversold.
There, a Chapter 13 trustee later attempted a § 363(h) sale after the property had revested in the debtor. The court rejected the claim but observed—assuming without deciding—that appropriate plan language might have preserved the relevant authority.
That is useful drafting guidance.
It is not a holding that the proposed language works.
Accordingly, a plan providing that the property remains in the estate and expressly contemplating a future trustee § 363(h) action may preserve the best available argument, but confirmation of such a provision should not be represented as guaranteeing that a later forced sale will be available.
The more modest and defensible purpose of such a provision is to preserve the estate interest, put the debtor, trustee, co-owner, and creditors on notice, and create the procedural setting in which the trustee can later decide whether § 363(h) should be exercised.
Where the issue is sufficiently concrete at confirmation, the plan could also contemplate that the trustee may seek court approval to employ debtor’s counsel or other special counsel for the § 363(h) litigation.
That would be considerably more transparent than allowing property to revest, waiting several years for relations with a co-owner to deteriorate, and only then trying to reconstruct the statutory authority necessary to sell it.
But Do Not Preserve Property “Just in Case”
None of this means every debtor with jointly owned property should retain it in the estate for five years.
That would ignore both Trantham and Professor Seymour.
The co-owner may agree to sell voluntarily. One party may refinance and buy out the other. Domestic litigation may resolve ownership. State-court partition may become preferable. The asset may cease to matter to plan performance.
Delayed vesting can itself impose costs and restrictions on the debtor.
Selective retention should therefore be used where there is a genuine and identifiable prospect that bankruptcy administration of the property will matter, not as boilerplate whenever a debtor happens to own property with somebody else.
A Practical EDNC Approach After Sliwinski
The path in the EDNC therefore looks less like finding a clever substitute for debtor standing and more like structuring the case so that the person who actually possesses the statutory authority can realistically exercise it.
First, determine whether sale of the entire property is genuinely necessary and whether the substantive requirements of § 363(h) can be met.
Second, conduct the § 1325(a)(4) liquidation analysis at the same time. If a hypothetical Chapter 7 trustee could use § 363(h), determine the actual net amount that would reach unsecured creditors after satisfying § 363(h), the co-owner’s rights, exemptions, trustee compensation, professional fees, sale expenses, and other Chapter 7 administrative costs.
Third, determine early whether the particular property should remain in the bankruptcy estate and draft the plan accordingly.
Fourth, approach the Chapter 13 trustee with a serious economic analysis showing both the likely actual benefit of a sale and—where applicable—the liquidation value the trustee is attributing to the same property under § 1325(a)(4).
Fifth, if the trustee agrees with the merits but reasonably does not want to devote limited trustee-office resources to real-estate litigation, consider whether the trustee can employ special counsel under § 327(e)—potentially the debtor’s existing lawyer where the matter-specific conflict analysis permits—to prosecute the adversary proceeding for the estate.
Sixth, obtain court approval and define carefully the scope of employment, compensation, control of litigation and settlement, confidentiality, conflicts, and termination of the special representation.
Only after those more straightforward routes have failed should counsel seriously consider theories such as compulsory trustee action or derivative standing, both of which face substantial doctrinal obstacles.
That sequence respects Sliwinski rather than attempting to evade it.
The trustee remains the person exercising the statutory power.
The debtor’s attorney supplies litigation capacity only when employed and supervised through the appropriate bankruptcy procedures.
The § 1325(a)(4) calculation reflects what a Chapter 7 trustee could realistically recover—not paper equity untethered from § 363(h)’s requirements and transaction costs.
And the property remains in the estate only when continued estate ownership serves an identifiable bankruptcy purpose.
Commentary:
There is something unsatisfying about treating “the debtor lacks standing” as the conclusion rather than the beginning of the analysis.
Suppose a debtor owns one-half of a $300,000 property with a former spouse. Sale of the debtor’s fractional interest alone might produce only $50,000, while sale of the entire property could generate $150,000 attributable to the debtor’s interest after liens and expenses and substantially fund the Chapter 13 plan.
Sliwinski says the debtor cannot personally invoke § 363(h).
Fair enough.
But suppose the Chapter 13 trustee simultaneously argues that, because a hypothetical Chapter 7 trustee could invoke § 363(h), the debtor must fund the plan based upon that higher liquidation value under § 1325(a)(4).
Now the problem becomes considerably more interesting.
The debtor may be required to pay creditors based on value that the debtor is prohibited from personally realizing.
That does not mean the liquidation value disappears. Shaw, Weiss, and particularly the EDNC’s own Chandler point in the other direction: the hypothetical liquidation test looks to the powers and likely recovery of a Chapter 7 trustee. (Western District Court VA)
But it does mean that the § 1325(a)(4) calculation must be honest.
If the trustee wants to count the proceeds of a hypothetical § 363(h) sale, then the trustee should also count the costs, risks, statutory limitations, co-owner distribution, exemptions, professional fees, and other expenses necessary to produce those proceeds.
The liquidation test should not simultaneously assume an aggressive Chapter 7 trustee for purposes of generating value and an imaginary cost-free sale for purposes of calculating the dividend.
And once a meaningful net § 363(h) value has been established, the next question should be:
Would the Chapter 13 trustee actually invoke it?
And if not:
Why not?
If the answer is that § 363(h)’s substantive requirements cannot be met, the detriment to the co-owner is too great, the economics are poor, or a consensual sale, buyout, refinance, or state partition is preferable, then the trustee may have every reason to decline—and those same facts may also substantially affect the § 1325(a)(4) calculation.
But if the trustee’s liquidation objection depends upon the proposition that a Chapter 7 § 363(h) sale would generate substantial value while the principal obstacle to an actual Chapter 13 sale is simply that the standing trustee does not want to divert limited office resources into complicated real-estate litigation, that is a different problem.
Section 327(e) may provide at least part of the practical answer.
Subject to court approval and appropriate ethical safeguards, the trustee may be able to retain qualified special counsel—including in a proper case the debtor’s existing attorney—to prosecute the discrete § 363(h) action for the estate.
That approach does not ask Rule 19 to manufacture statutory authority.
It does not depend upon persuading the Fourth Circuit to recognize and then dramatically expand derivative standing.
It does not pretend that Thiel decided a question it expressly left open.
And it does not require a plan provision to somehow transform the debtor into “the trustee” for purposes of § 363(h).
Instead, it leaves the statutory authority where Congress placed it—with the trustee—while addressing one very practical reason a standing Chapter 13 trustee might be reluctant to exercise that authority.
The plan still matters, principally because it may preserve the necessary estate interest and put everyone on notice before confirmation. Trantham gives debtors meaningful control over vesting, while Professor Seymour’s work supplies an important limiting principle: retain property in the estate when doing so serves an actual purpose, not merely because continued bankruptcy control is administratively convenient.
Section 1325(a)(4) adds another reason to identify the issue at the beginning rather than after confirmation. If a hypothetical § 363(h) sale is going to establish the minimum dividend the debtor must provide, counsel should know that before allowing the very asset that may generate those funds to revest without considering the consequences.
And derivative standing should remain much farther down the list. Baltimore Emergency Services arose from Chapter 11 creditors seeking to exercise estate rights, not from a Chapter 13 debtor seeking a trustee-only power; the Fourth Circuit questioned whether the doctrine is textually sound at all and denied relief even on the assumption that some form of derivative standing might exist. Extending that uncertain doctrine into this very different Chapter 13 setting would be adventurous indeed.
So after Sliwinski, the better EDNC response may not be to search for increasingly creative theories under which the debtor can exercise § 363(h).
It may instead be to calculate the hypothetical Chapter 7 liquidation honestly, preserve the property in the estate when appropriate, make the economic case to the Chapter 13 trustee, let the trustee exercise the power Congress actually gave the trustee, and—where trustee resources rather than the merits are the obstacle—provide those litigation resources through properly employed special counsel.
That still leaves unanswered questions.
But it is a cleaner and considerably more realistic way to turn Sliwinski from a dead end into a starting point.
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