                                                            FILED
                                                            JUL 29 2014

 1                                                      SUSAN M. SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT
 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.    NC-13-1318-JuKuD
                                   )
 6   KVN CORPORATION, INC.,        )      Bk. No.    13-10477
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )      O P I N I O N
     LINDA S. GREEN, Chapter 7     )
 9   Trustee,                      )
                                   )
10                  Appellant.     )
     ______________________________)
11
12             Submitted Without Oral Argument on July 11, 2014*
13                           Filed - July 29, 2014
14              Appeal from the United States Bankruptcy Court
                    for the Northern District of California
15
          Honorable Alan Jaroslovsky, Bankruptcy Judge, Presiding
16                       _________________________
17   Appearances:     Jean Barnier, Esq., on brief for appellant
                      Linda S. Green.
18                         ________________________
19   Before:    JURY, KURTZ, and DUNN, Bankruptcy Judges.
20
21
22
23
24
25
26
          *
27           On June 18, 2014, this Panel entered an order determining
     that this appeal was suitable for submission without oral
28   argument.
 1   JURY, Bankruptcy Judge:
 2
 3            Linda S. Green, chapter 71 trustee (Trustee) in the
 4   bankruptcy estate of KVN Corporation, Inc. (KVN or debtor),
 5   filed a motion seeking approval of a stipulation between Trustee
 6   and Wilshire State Bank (Bank) which contemplated a sale of the
 7   Bank’s fully encumbered property in exchange for a carve out
 8   from the lien proceeds paid to the bankruptcy estate.        The
 9   bankruptcy court denied the motion and Trustee’s later filed
10   motion for reconsideration.      This appeal followed.    For the
11   reasons discussed below, we VACATE and REMAND this matter to the
12   bankruptcy court for proceedings consistent with this decision.
13                                  I.   FACTS
14            The essential facts are few and undisputed.     KVN owned a
15   sporting goods store.      KVN was indebted to the Bank under the
16   terms of a note in the original principal sum of $915,000.          The
17   note was secured by KVN’s real property and by substantially all
18   of its business assets.
19            On March 8, 2013, KVN filed its chapter 7 petition and
20   Green was appointed chapter 7 trustee.      In Schedule A, debtor
21   listed inventory including “liquor, gun, ammunition, cleaning
22   kits, and fishing reels” with a value of $28,950.        Debtor failed
23   to reflect the Bank’s security interest in the inventory, but
24   listed the Bank as a secured creditor against its real property
25   in Schedule D.      At the time of the filing, debtor owed the Bank
26
27        1
             Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
28
     “Rule” references are to the Federal Rules of Bankruptcy
     Procedure.

                                         -2-
 1   approximately $309,569.   In Schedule F, debtor listed unsecured
 2   claims in the amount of $107,565.     After the filing, Trustee
 3   removed rifles and guns from debtor’s store and placed them in a
 4   gun storage locker at the cost of $25 per day.    Trustee employed
 5   an auctioneer to conduct a public sale of these assets, which
 6   would likely bring $10,000.    After reviewing public records,
 7   Trustee learned that the Bank held a perfected UCC-1 on all of
 8   debtor’s inventory, including the firearms.    Trustee contacted
 9   the Bank and informed it that the firearms had been removed for
10   safekeeping and that the Bank could retrieve them.
11        In late April 2013, the Bank contacted Trustee and
12   requested her assistance in selling the firearms through the
13   auctioneer she had employed.   The Bank agreed that it would pay
14   for the storage costs and split the net proceeds with the
15   bankruptcy estate.   Trustee agreed based on her belief that the
16   transaction would net between $4,200 to $4,400 for the benefit
17   of unsecured creditors.   Trustee and the Bank entered into a
18   stipulation setting forth these terms.
19        Trustee subsequently filed a motion seeking approval of the
20   stipulation from the bankruptcy court.    At the May 10, 2013
21   hearing, the bankruptcy court denied Trustee’s motion.
22   Initially, the court made reference to Charles Duck, a former
23   trustee in the Northern District of California, who “had a habit
24   of making deals with secured creditors even though there was no
25   equity he would sell the — he would liquidate the asset and have
26   various types of arrangements for sharing the proceeds.    And I
27
28
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 1   put a stop to that many years ago.”2      The court further opined:
 2           [T]he role of a chapter 7 trustee is to closely
             examine the secured creditor’s security interest and
 3           defeat it, if the trustee can. And, if not, turn the
             asset over to the secured creditor. It is a slippery
 4           slope, to my mind, when the debtor and the secured
             creditor start making deals. I do not believe it’s
 5           the appropriate role of a chapter 7 trustee to
             liquidate fully-encumbered assets.
 6
 7           Counsel for Trustee and the Bank both emphasized that there
 8   was full disclosure, everything was above board, and there would
 9   be a return to the unsecured creditors.      The Bank’s counsel
10   further explained that the auctioneer hired by Trustee had the
11   expertise to sell the firearms in a lawful manner which caused
12   it to agree to release its lien on fifty percent of the
13   proceeds.    The bankruptcy court responded: “I have no problem if
14   your client wants to waive its security, and the trustee can
15   liquidate it in the ordinary course.      I just have a problem with
16   the sharing arrangement.”    The court opined that “arrangements
17   like this are dangerous because they can lead to improper
18   activity.”    The court concluded:     “So in this particular case I
19   do not believe that the benefits to the estate outweigh my
20   concerns for the proper role of the trustee and the bankruptcy
21   system.”    On May 15, 2013, the bankruptcy court entered the
22   order denying approval of the stipulation.
23           Trustee moved for reconsideration.    Trustee argued that
24
         2
25           Charles Duck is a former bankruptcy trustee who was
     convicted for embezzling more than $1.9 million from various
26   bankruptcy estates in late 1989. See Dickinson v. Duck (In re
     Duck), 122 B.R. 403, 404 (Bankr. N.D. Cal. 1990). The bankruptcy
27
     court made clear that it was not equating Ms. Green with Mr.
28   Duck.

                                      -4-
 1   there was nothing in the bankruptcy code which prevented her
 2   from entering into agreements with secured creditors or that
 3   stated a chapter 7 trustee’s proper role was to liquidate only
 4   unsecured assets.   Trustee further asserted that there was
 5   nothing in the agreement between her and the Bank which
 6   suggested the parties were acting in an improper manner.
 7   Trustee noted that § 506(c) provided authority that
 8   administrative expenses could be paid from the sale of secured
 9   assets even if there was no benefit to unsecured creditors and
10   when the secured creditor caused or consented to the expense.
11   See Compton Impressions, Ltd. v. Queen City Bank, N.A. (In re
12   Compton Impressions, Ltd.), 217 F.3d 1256 (9th Cir. 2000).
13        On June 14, 2013, the bankruptcy court heard the matter and
14   took it under advisement.      Two days later, the bankruptcy court
15   issued its Memorandum of Decision and denied Trustee’s motion
16   for reconsideration.   The bankruptcy court opined that
17   arrangements between trustees and secured creditors raised a
18   presumption of impropriety and found that Trustee had not
19   rebutted that presumption.      On June 17, 2013, the court entered
20   the order denying Trustee’s motion for reconsideration.
21   Trustee timely appealed.
22                            II.    JURISDICTION
23        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
24   §§ 1334 and 157(b)(2)(A), (N) and (O).         We have jurisdiction
25   under 28 U.S.C. § 158.
26                                  III.    ISSUE
27        Whether the bankruptcy court abused its discretion by
28   denying approval of the stipulation between Trustee and the Bank

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 1   which contemplated a sale of the Bank’s fully encumbered
 2   property in exchange for a carve out from the lien proceeds to
 3   the bankruptcy estate.
 4                         IV.   STANDARD OF REVIEW
 5        The bankruptcy court’s decision denying approval of the
 6   stipulation between Trustee and the Bank is reviewed for abuse
 7   of discretion.   A & A Sign Co. v. Maughan, 419 F.2d 1152, 1155
 8   (9th Cir. 1969).   A bankruptcy court abuses its discretion when
 9   it applies the incorrect legal rule or its application of the
10   correct legal rule is “(1) illogical, (2) implausible, or
11   (3) without support in inferences that may be drawn from the
12   facts in the record.”    United States v. Loew, 593 F.3d 1136,
13   1139 (9th Cir. 2010).
14                               V.   DISCUSSION
15   A.   The General Rule Is That The Sale Of Fully Encumbered
          Property Is Prohibited.
16
17        We begin with an overview of the chapter 7 trustee’s duties
18   under § 704 and his or her power to sell under § 363.    Under
19   § 704(a)(1), a chapter 7 trustee has the duty to “collect and
20   reduce to money the property of the estate for which such
21   trustee serves . . . .”     To fulfill this duty, the trustee’s
22   “primary job is to marshal and sell the assets, so that those
23   assets can be distributed to the estate’s creditors.”    U.S. Tr.
24   v. Joseph (In re Joseph), 208 B.R. 55, 60 (9th Cir. BAP 1997).
25   Indeed, a core power of a bankruptcy trustee under § 363(b) is
26   the right to sell “property of the estate” for the benefit of a
27   debtor’s creditors.   See § 363(b)(1) (“The trustee, after notice
28   and a hearing, may use, sell, or lease, other than in the

                                       -6-
 1   ordinary course of business, property of the estate. . . .”).
 2   Under § 363(f)(2), a bankruptcy trustee may sell property of the
 3   estate free and clear of a lien or other interest where the
 4   holder of the lien or interest consents.
 5        It is universally recognized, however, that the sale of a
 6   fully encumbered asset is generally prohibited.   Carey v.
 7   Pauline (In re Pauline), 119 B.R. 727, 728 (9th Cir. BAP 1990);
 8   In re Scimeca Found., Inc., 497 B.R. 753, 781 (Bankr. E.D. Pa.
 9   2013) (“It is generally recognized that a chapter 7 trustee
10   should not liquidate fully encumbered assets, for such action
11   yields no benefit to unsecured creditors.”) (citing Morgan v.
12   K.C. Mach. & Tool Co. (In re K.C. Mach. & Tool Co.), 816 F.2d
13   238, 245–46 (6th Cir.1987)); In re Covington, 368 B.R. 38, 41
14   (Bankr. E.D. Cal. 2006) (“[W]hen an asset is fully encumbered by
15   a lien, it is considered improper for a chapter 7 trustee to
16   liquidate the asset.”); In re Feinstein Family P’ship, 247 B.R.
17   502, 507 (Bankr. M.D. Fla. 2000) (“Clearly, the Code never
18   contemplated that a Chapter 7 trustee should act as a
19   liquidating agent for secured creditors who should liquidate
20   their own collateral.”);   In re Preston Lumber Corp., 199 B.R.
21   415, 416 (Bankr. N.D. Cal. 1996) (actual conflict of interest
22   arises when the trustee sees he can make more money for himself
23   by liquidating collateral for a secured creditor than he can by
24   asserting a claim against the secured creditor on behalf of the
25   estate); In re Tobin, 202 B.R. 339, 340 (Bankr. D.R.I. 1996)
26   (“The mission of the Chapter 7 trustee is also to enhance the
27   debtor’s estate for the benefit of unsecured creditors.”).
28        The prohibition against the sale of fully encumbered

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 1   property is also embedded in the official Handbook for Chapter 7
 2   Trustees in several places:
 3        Generally, a trustee should not sell property subject
          to a security interest unless the sale generates funds
 4        for the benefit of unsecured creditors. A secured
          creditor can protect its own interests in the
 5        collateral subject to the security interest.
 6   U.S. DOJ Exec. Office for U.S. Trs., Handbook for Chapter 7
 7   Trustees at 4–16 (2012) (hereinafter, Handbook).   The Handbook
 8   also provides:
 9        A chapter 7 case must be administered to maximize and
          expedite dividends to creditors. A trustee shall not
10        administer an estate or an asset in an estate where
          the proceeds of liquidation will primarily benefit the
11        trustee or the professionals, or unduly delay the
          resolution of the case. The trustee must be guided by
12        this fundamental principle when acting as trustee.
          Accordingly, the trustee must consider whether
13        sufficient funds will be generated to make a
          meaningful distribution to unsecured creditors,
14        including unsecured priority creditors, before
          administering a case as an asset case. 28 U.S.C.
15        § 586.
16   Id. at 4-1.   Finally,
17        [i]n asset cases, when the property is fully
          encumbered and of nominal value to the estate, the
18        trustee must immediately abandon the asset and contact
          the secured creditor immediately so that the secured
19        creditor can obtain insurance or otherwise protect its
          own interest in the property. [§§] 554, 704.
20
21   Id. at 4-7.   Taken together, the above-referenced authorities
22   stand for the proposition that sales of fully encumbered assets
23   are generally improper.   In that instance, the trustee’s proper
24   function is to abandon the property, not administer it, because
25   the sale would yield no benefit to unsecured creditors.
26        In fact, “‘the principle of abandonment was developed . . .
27   to protect the bankruptcy estate from the various costs and
28   burdens of having to administer property which could not

                                    -8-
 1   conceivably benefit unsecured creditors of the estate.’”      In re
 2   Pauline, 119 B.R. at 728; see also In re K.C. Mach. & Tool Co.,
 3   816 F.2d at 246 (“[I]n enacting § 554, Congress was aware of the
 4   claim that formerly some trustees took burdensome or valueless
 5   property into the estate and sold it in order to increase their
 6   commissions.”).   However, “[a]bandonment should not be ordered
 7   where the benefit of administering the asset exceeds the cost of
 8   doing so. . . .   Absent an attempt by the trustee to churn
 9   property worthless to the estate just to increase fees,
10   abandonment should very rarely be ordered.”   In re K.C. Mach. &
11   Tool Co., 816 F.2d at 246; see also Vu v. Kendall (In re Vu),
12   245 B.R. 644, 647–48 (9th Cir. BAP 2000).
13   B.   There Is No Per Se Rule That Bans Carve-Out Agreements.
14        Despite the general rule prohibiting the sale of fully
15   encumbered property, chapter 7 trustees may seek to justify the
16   sale through a negotiated carve-out agreement with the secured
17   creditor.   A carve-out agreement is generally understood to be
18   “an agreement by a party secured by all or some of the assets of
19   the estate to allow some portion of its lien proceeds to be paid
20   to others, i.e., to carve out its lien position.”   Costa v.
21   Robotic Vision Sys., Inc. (In re Robotic Vision Sys., Inc.),
22   367 B.R. 232, 237 n.23 (1st Cir. BAP 2007); see also In re
23   Besset, 2012 WL 6554706, at *5 n.5 (9th Cir. BAP 2012).     There
24   is no per se rule that bans this type of contractual
25   arrangement:   “[C]reditors are generally free to do whatever
26   they wish with the bankruptcy dividends they receive, including
27   to share them with other creditors.”   Official Unsecured
28   Creditors Comm. v. Stern (In re SPM Mfg. Corp.), 984 F.2d 1305,


                                    -9-
 1   1313 (1st Cir. 1992).3
 2            The Handbook also provides some guidance on carve-out
 3   agreements in the context of a sale:
 4            A trustee may sell assets only if the sale will result
              in a meaningful distribution to creditors. In
 5            evaluating whether an asset has equity, the trustee
              must determine whether there are valid liens against
 6            the asset and whether the value of the asset exceeds
              the liens. The trustee may seek a ‘carve-out’ from a
 7            secured creditor and sell the property at issue if the
              ‘carve-out’ will result in a meaningful distribution
 8            to creditors. . . . If the sale will not result in a
              meaningful distribution to creditors, the trustee must
 9            abandon the asset.
10   Handbook at 4–14.
11   C.       The Genesis Of The Bankruptcy Court’s “Presumption Of
              Impropriety” Is Based On Past Abuses Of Carve-Out
12            Agreements Such As This.
13            Although there is no per se ban on carve-out agreements,
14   agreements such as the one before us have been reviewed under a
15   standard of heightened scrutiny due to past abuses.     One court
16   noted:
17            It is not rare that trustees of Chapter 7 estates are
              approached by secured creditors who seek the trustee’s
18            help to liquidate fully encumbered collateral. They
              realize that before the trustee is willing to go along
19            with the proposition the secured creditor must put a
              little sweetener in the deal by agreeing to pay
20            sufficient sums to compensate the trustee and to pay
              other costs of administration. The more sophisticated
21            trustee may demand that the secured creditor throw in
              a pittance to pay a meaningless dividend to unsecured
22            creditors, making the arrangement more palatable to
              the court. The proposition is very attractive from
23            the secured creditor’s point of view and economically
              sound because it may stave off a possible attempt by
24            the trustee to seek to surcharge the collateral and,
25
          3
26           The SPM court also held that the bankruptcy court had no
     authority to control how the secured creditor disposed of the
27   proceeds once it received them. Id. at 1313.
28                                     -10-
 1        most importantly, save the potentially expensive cost
          of a foreclosure suit. The offered deal is also
 2        attractive to the trustee because it assures that he
          or she will earn a commission in an otherwise no asset
 3        case and may seek a commission based on the gross
          sales price and not on the net distributed to parties
 4        of interest.
 5   In re Feinstein Family P’ship, 247 B.R. at 507; see also In re
 6   Pauline, 119 B.R. at 728 (“Some of the early cases condemned
 7   this particular practice [,] . . . and decried the practice of
 8   selling burdensome or valueless property simply to obtain a fund
 9   for their own administrative expenses.”) (citing Standard Brass
10   Corp. v. Farmers Nat’l Bank, 388 F.2d 86 (7th Cir. 1967); Miller
11   v. Klein (In re Miller), 95 F.2d 441 (7th Cir. 1938); and
12   Seaboard Nat’l Bank v. Rogers Milk Prods. Co., 21 F.2d 414 (2d
13   Cir. 1927)).   Against this historical backdrop, coupled with the
14   bankruptcy court’s first-hand experience with Mr. Duck, there is
15   support for the bankruptcy court’s conclusion that a presumption
16   of impropriety arises under these circumstances.
17        We do not agree with Trustee’s argument that the literal
18   text of §§ 704(a)(1), 506(c), and 363(f)(2) “compels the
19   conclusion that the ‘presumption of impropriety’ suggested by
20   the bankruptcy court . . . was error.”   The issue presented in
21   this appeal is not simply a matter of interpreting any of these
22   statutes where the “plain language” applies.    If this were the
23   case, we could ignore the well-settled case law, including our
24   own, that espouses the proposition that a sale of fully
25   encumbered property is generally inappropriate because there is
26   no benefit to unsecured creditors.    We would also undermine the
27   guidance provided to chapter 7 trustees in the Handbook, which
28   Trustee fails even to mention in this appeal.


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 1          Further, in our view, § 506(c) does not apply under these
 2   circumstances.    Substantively, the elements that Trustee must
 3   prove for a § 506(c) claim are different from those needed to
 4   justify a sale of fully encumbered property in connection with a
 5   carve-out agreement.   See Central Bank of Mont. v. Cascade
 6   Hydraulics & Util. Serv., Inc. (In re Cascade Hydraulics & Util.
 7   Serv., Inc.), 815 F.2d 546, 548 (9th Cir. 1987). (under § 506(c)
 8   the trustee must show that the expenses incurred were
 9   reasonable, necessary, and beneficial to the secured creditor
10   and to satisfy the benefit part of the test, the trustee must
11   “establish in quantifiable terms that [she] expended funds
12   directly to protect and preserve the collateral.”); compare In
13   re Bunn-Rodemann, 491 B.R. 132 (Bankr. E.D. Cal. 2013) (finding
14   “incentive payment” arrangement between secured creditor and
15   trustee for sale of fully encumbered real property “consistent”
16   with § 506(c)).
17          Of course, the presumption of impropriety is a rebuttable
18   one.   To rebut the presumption, the case law directs the
19   following inquiry:   Has the trustee fulfilled his or her basic
20   duties?   Is there a benefit to the estate; i.e., prospects for a
21   meaningful distribution to unsecured creditors?   Have the terms
22   of the carve-out agreement been fully disclosed to the
23   bankruptcy court?    If the answer to these questions is in the
24   affirmative, then the presumption of impropriety can be
25   overcome.
26          The bankruptcy court made no findings with respect to these
27   questions.   However, in answering the first and third questions
28   the basic and undisputed facts are not fairly susceptible of


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 1   diverse inferences.    See Commercial Paper Holders v. Hine
 2   (Matter of Beverly Hills Bancorp), 752 F.2d 1334, 1338 (9th Cir.
 3   1984) (“Although remand generally is required for findings of
 4   fact, remand is not necessary when the trial court fails to make
 5   such findings and the facts in the record are undisputed.”).
 6   The record shows that Trustee fulfilled her basic duties.      She
 7   examined the Bank’s asserted security interest against the
 8   firearms and found its lien valid.      See Handbook at 4-5.   She
 9   then informed the Bank where the firearms were so it could
10   retrieve its collateral.    See Handbook at 4-7.    In addition,
11   Trustee fully disclosed the terms of the carve-out agreement to
12   the bankruptcy court and the creditor body, which is contrary to
13   any inference of a secret side deal between Trustee and the
14   Bank.    Therefore, it does not follow that Trustee was
15   administering the asset for primarily her own benefit.     See
16   Handbook at 4-1.    However, whether $5,000 from the lien proceeds
17   will result in a meaningful distribution to the unsecured
18   creditors is a question of fact that is, on this sparse record,
19   susceptible of diverse inferences resulting in different
20   conclusions.    Because the bankruptcy court’s decision to approve
21   the stipulation is a matter committed to the court’s discretion,
22   we find it necessary to remand for factual findings on this
23   issue.
24   D.      The Case Law Cited By The Bankruptcy Court In Support Of
             Its Decision Is Distinguishable.
25
26           The bankruptcy court cited In re Pauline, In re Preston
27   Lumber, and In re Covington in support of its decision denying
28   approval of the stipulation.    Collectively, these cases stand


                                      -13-
 1   for the proposition that overencumbered property generally
 2   should be abandoned, not administered, because there is no
 3   benefit to unsecured creditors.    As noted above, most courts
 4   recognize this general rule.    Furthermore, in each case, the
 5   court found the trustee’s actions inappropriate under the
 6   circumstances of the case.    However, none of these cases support
 7   the bankruptcy court’s decision in this case.
 8           In Pauline, the chapter 7 trustee decided to abandon the
 9   debtor’s home and then reversed his decision, stating his
10   intention to sell it.    The debtor moved to compel the trustee to
11   abandon the property.    After considering the motion, the
12   bankruptcy court required the trustee to find a buyer for the
13   debtor’s home within 60 days at a price sufficient to satisfy
14   all liens on the home plus the allowed amount of the debtor’s
15   homestead exemption, in the absence of which the debtor’s home
16   would be deemed abandoned.    In re Pauline, 119 B.R. at 728.      On
17   appeal, the Panel affirmed the bankruptcy court’s decision in
18   part, because (1) the IRS did not ask the trustee to sell the
19   property for the IRS’ benefit, and (2) the trustee apparently
20   had “engaged in . . . conduct designed to enhance the size of
21   his bank account rather than the size of the funds available for
22   the debtor’s unsecured creditors . . . .”    Id. at 728.     Unlike
23   in Pauline, the Bank here supports Trustee’s sale due to the
24   auctioneer’s expertise in selling the firearms in a lawful
25   manner and, as discussed above, a sale will benefit unsecured
26   creditors, not just increase the fees paid to Trustee.4
27
         4
28            Whether or not Trustee will be awarded fees from the
                                                         (continued...)

                                      -14-
 1           The holding in In re Preston Lumber Corp. also does not
 2   drive the outcome in this case.     There, the secured creditor,
 3   Sumitomo Bank and the debtor’s industrial lessor had a dispute
 4   as to the priority of their lien rights in fully encumbered
 5   sawmill equipment and rolling stock.     Sumitomo convinced the
 6   chapter 7 trustee to sell the assets free and clear of liens, in
 7   exchange for a pre-fixed commission for the trustee and $35,000
 8   fee for the trustee’s attorney.     The bankruptcy court found the
 9   arrangement “highly improper” on the grounds that (1) there was
10   no resulting benefit to the estate and (2) the trustee and his
11   counsel were motivated by personal gain.     In re Preston Lumber
12   Group, 199 B.R. at 416-17.      The case is distinguishable on its
13   face because, as discussed above, there is no evidence here that
14   Trustee was motivated by personal gain and there likely is a
15   resulting benefit to unsecured creditors arising out of the
16   sale.
17           Lastly, In re Covington, 368 B.R. 38, is inapposite.
18   Because the debtor in Covington owed a domestic support
19   obligation, the trustee argued that § 522(c)(1) required the
20   disallowance of the debtor’s exemption in a bank deposit and an
21   automobile to permit those assets to be liquidated and the
22   proceeds paid to the holder of the domestic support obligation
23   claim.      The bankruptcy court rejected this argument, noting that
24   “§ 522(c)(1) does not provide for the disallowance of an
25
26           4
           (...continued)
     eventual sale of the firearms was not at issue before the
27
     bankruptcy court nor is it relevant to our analysis in this
28   appeal. The bankruptcy court may consider the appropriate fee at
     a hearing on compensation.

                                       -15-
 1   exemption.   Rather, it provides that property exempted by the
 2   debtor is nonetheless liable for a domestic support obligation.
 3   Disallowance of the exemption is not a predicate to the
 4   enforcement of a domestic support obligation.”   Id. at 40–41.
 5   The court also denied the trustee’s request to sell the assets
 6   because (1) the property was removed from the bankruptcy estate
 7   since it was exempt and thus there was no property of the estate
 8   to administer and (2) although the assets were not fully
 9   encumbered, the trustee sought to sell the assets for the
10   benefit of one creditor rather than for unsecured creditors
11   generally.   Id. at 41.   “Given that the Madera County Child
12   Support Department is collecting the claim for the benefit of
13   the claim holder, it is clear that the assistance of the
14   trustee, which would come at a price, is unnecessary.    By
15   enforcing the domestic support obligation in state court, the
16   trustee's administrative expenses will be avoided.”   Id.     Unlike
17   Covington, the asset here is not exempt and Trustee is
18   liquidating the asset for the general unsecured creditor body.
19                             VI.   CONCLUSION
20        For the reasons stated, we VACATE and REMAND this matter to
21   the bankruptcy court for proceedings consistent with this
22   decision.
23
24
25
26
27
28


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