Case Summary:
Debtors moved to approve settlement with a creditor, proposing to pay the creditor from proceeds held in escrow held by a title company. The settlement required the Debtors to convert their case from Chapter 7 to Chapter 13, and to treat the creditor as a secured claimant in the Chapter 13 plan. But before conversion, the Chapter 7 Trustee of the Debtors’ estate filed an adversary proceeding seeking a determination that the creditor was unsecured. The Court ruled in the Trustee’s favor. Thus, the Court then denied the Debtors’ motion to approve settlement because the Court had already determined that the creditor was unsecured, and because the Debtors couldn’t settle claims using estate property.

Statute/Rule References:
11 U.S.C. § 541 -- Property of the Estate
Fed. R. Bankr. P. 9019(a) -- Compromise or Settlement

Key Terms:
Property of the Estate
Settlement