William Michael Phillips

UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF TENNESSEE

EASTERN DIVISION

In re:

William Michael Phillips, Case No. 25-11514 Debtor. Chapter 13

MEMORANDUM OPINION RE: (1) CHAPTER 13 TRUSTEE'S OBJECTION TO CONFIRMATION (ECF NO. 17) AND (2) DEBTOR'S MOTION TO ALLOW POST-

PETITION TRANSFER PURSUANT TO THE MARITAL DISSOLUTION

AGREEMENT (ECF NO. 27)

In this proceeding, the Court is asked to determine whether the debtor retained a qualifying interest in real property under a pre-petition marital dissolution agreement ("MDA"). The MDA, which was incorporated into the parties' final decree of divorce, awarded the real property and all the equity therein to the debtor's ex-spouse. It also provided that the debtor would remain responsible for one-half of the (1) mortgage, (2) real property taxes, and (3) homeowner's insurance on the property. The MDA stated that the debtor would quitclaim his interest in the property to his ex-wife upon her request. At the time of filing his bankruptcy petition, the debtor's

____________________________________________________________ ________________________________________

Jimmy L. Croom

UNITED STATES BANKRUPTCY JUDGE

Dated: September 28, 2026

The following is SO ORDERED:

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ex-wife had not asked debtor to execute the quitclaim deed such that the debtor's name still appears on the deed. Neither the final decree of divorce nor the MDA were filed with the Register of Deeds.

The Chapter 13 Trustee asserts that the equity in the real property must be captured for the benefit of unsecured creditors pursuant to the best interests of the creditors test set forth at 11 U.S.C. § 1325(a)(4). The debtor disputes this assertion and contends that the MDA allocated all equitable ownership and economic benefit of the property to the debtor's ex-wife such that the property is excluded from property of the estate under 11 U.S.C. § 541(d). The debtor also seeks authority to execute a quitclaim deed transferring his interest in the property to his ex-wife.

The Court conducted a hearing on these matters on September 10, 2026, at which time it took the matters under advisement.

JURISDICTION

This proceeding arises in a case referred to this Court by the Standing Order of Reference, Misc. Order No. 84-30 in the United States District Court for the Western District of Tennessee, Western and Eastern Divisions, and is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A); see also, Reed v. Nathan, 558 B.R. 800, 815 (E.D. Mich. 2016) ("[T]here is no doubt that a bankruptcy court has core jurisdiction to determine what constitutes property of the estate.") This Court has jurisdiction over core proceedings pursuant to 28 U.S.C. §§ 157(b)(1) and 1334. Thus, the Court may hear and enter a final order in this matter. This memorandum opinion and order shall serve as the Court's findings of facts and conclusions of law. Fed. R. Bankr. P. 7052.

FACTS

William Michael Phillips ("Debtor") and Shenoa Starr Phillips ("Ms. Phillips") were divorced on August 23, 2022, under the terms of a Final Decree of Divorce ("Divorce Decree") entered in the Circuit Court for Hamilton County, Tennessee.¹(See Exhibit A to Memorandum of

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Law In Support of Motion to Allow Post-Petition Transfer, ECF No. 42 at 10-11.) The Divorce Decree ordered "that the Marital Dissolution Agreement executed by the parties is approved by the Court and adopted herein by reference and made a part of this Final Decree." (Id. at 11.) The Marital Dissolution Agreement ("MDA") was executed by Ms. Phillips on March 16, 2022, and by the Debtor on March 14, 2022, and was filed with the Circuit Court of Hamilton County, Tennessee, on April 20, 2022. (See MDA, ECF No. 42 at 13-23.) The MDA provides, in material part, as follows:

3. REAL PROPERTY. The parties own real property at 7824 Lake Ridge Drive, Chattanooga, Hamilton County, Tennessee (hereinafter the "Marital Residence") ["Lake Ridge Property"]. The parties agree that the Wife shall be awarded the Marital Residence and all equity therein, whether currently or earned in the future. The Husband shall assume and pay one-half (½) of the indebtedness owed on the Marital Residence, one half (½) of the homeowner's insurance premium and one- half (½) of the property taxes on the Marital Residence until the mortgage indebtedness is paid in full or the Wife sells the Marital Residence. Each party shall hold the other party harmless and indemnify him or her from any debt thereon. …

Husband shall execute a Quitclaim Deed to convey his interest in the Marital Residence to the Wife upon Wife's request as long as the execution of the same does not create an event of default of the mortgage contract. If and when Wife decides to sell the Marital Residence, the Wife shall be awarded any net proceeds from the sale after the payoff of any outstanding mortgage balance, Realtor commissions or fees and any closing costs or other costs, fees or expenses necessary to complete the sale of the Marital Residence. (Id. at 14-25.)

Counsel for the Debtor stated at the hearing in this matter that neither the Divorce Decree nor the MDA were recorded with the Hamilton County Register of Deeds. The Debtor filed a chapter 13 petition for bankruptcy relief on October 30, 2025. The Debtor did not list any real property on his petition or the accompanying schedules nor did he provide for any monthly payments for real property in his proposed chapter 13 plan. In response to Question 23 on his Statement of Financial Affairs ("SOFA") "Do you hold or control any of Motion to Allow Post-Petition Transfer, ECF No. 42 at 1.) No party to this proceeding provided the Court with a copy of the November 3, 2025 Amended Final Order of Divorce.

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property that someone else owns," the Debtor responded "no." (SOFA, ECF No. 1 at 37.) He also indicated on schedule H that he did not have any co-debtors. The Debtor did not claim an exemption in any real property.

The Chapter 13 Trustee filed an objection to confirmation of Debtor's plan on December

5, 2025.

On February 10, 2026, the Debtor filed an amended Schedule A/B to list an interest in the Lake Ridge Property. The Debtor valued the property at $661,900.00 and listed the value of the portion he owns as $330,950.00. He indicated the nature of his ownership interest in the property as "Joint tenant." (Amended Schedule A/B at 1, ECF No. 21.) In response to the question "Who has an interest in the property," the Debtor checked the "[a]t least one of the debtors and another"

box. (Id.) Under "Other information you wish to add about this item," the Debtor stated Marital property was awarded to ex-wife Shenoa Starr Phillips along with all the equity of the marital home in the MDA that was entered 08/23/2022 by the Circuit Court of Hamilton County. Ex-Wife Shenoa Phillips. [sic] Ex-Husband was to execute a Quick [sic] Claim Deed to the ex-wife.

(Id.)

The Debtor also filed an amended Schedule D on February 10, 2026, to add Nexus Nova, LLC c/o ServiceMac, LLC ("ServiceMac"), as a secured creditor with a claim on the Lake Ridge Property in the amount of $452,633.47. The Debtor indicated that "[a]t least one of the debtors and another" owes this debt. (Amended Schedule D at 2, ECF No. 23.)

On February 23, 2026, the Debtor filed a Motion to Allow Post-Petition Transfer Pursuant to the Marital Dissolution Agreement ("Motion to Transfer") in which he sought authority to transfer his interest in the Lake Ridge Property to his ex-wife. The Debtor summarized the relevant provisions of the MDA and then stated that at the time he filed his bankruptcy petition on October 30, 2026, Ms. Phillips had "not requested the Debtor to execute a Quitclaim Deed to convey his interest in the Martial [sic] Resident" [sic]. (Motion to Transfer at 1-2, ECF No. 27.) According to the motion, the Debtor was seeking authority to transfer the property "pursuant to 11 U.S. Code § 303(f), Bankruptcy Rule 3001, Bankruptcy Rule 3001(e), Federal Bankruptcy Rule 4001[.]" (Id. at 1.)

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On March 18, 2026, Ms. Phillips filed a letter with the Clerk of Court in which she stated that she received notice that "William Michael Phillips has filed for Chapter 13 bankruptcy and has included items awarded to me. I do NOT want or approve of any kind of lien, encumbrance, or modification to my property or our decree." (Letter at 1, ECF No. 30.) The Debtor filed a second Amended Schedule D on April 8, 2026. Once again, the Debtor indicated that ServiceMac held a secured claim against the Lake Ridge Property and that "[a]t least one of the debtors and another" owes the debt. (Second Amended Schedule D at 1, ECF No. 31.) The Debtor filed an amended chapter 13 plan that same day which provided for direct payment of the ServiceMac mortgage in the amount of $1,420.00. (Amended Chapter 13 Plan at 1, ECF No. 33.) The Debtor filed an amended Schedule E/F on April 9, 2026, listing a total of $55,316.08 in nonpriority unsecured debts. (Amended Schedule E/F, ECF No. 34.)

The Debtor filed a second amended chapter 13 plan on May 5, 2026. This plan listed the mortgage payment to ServiceMac and indicated it would be paid "directly by debtor." (Second Amended Plan at 1-2, ECF No. 35.)

The Debtor filed a third amended chapter 13 plan on May 11, 2026. Instead of listing ServiceMac as a home mortgage creditor, the Debtor moved ServiceMac to "Item 11. Student Loan Claims and Other Long Term Claims." (Third Amended Plan at 2, ECF No. 37.) The Debtor indicated that he would serve as disbursing agent and that the balance would survive discharge. Pursuant to the third amended plan, the Debtor proposed a monthly chapter 13 plan payment of $2,749.00.

The Debtor filed a Memorandum of Law in support of his Motion to Transfer on August 19, 2026. The debtor stated that "[t]he requested relief does not seek to transfer estate equity away from creditors. It asks the Court to permit Mr. Phillips to complete a prepetition state-court domestic-relations property division fixed more than three years before the chapter 13 petition."

(Memo. in Support, ECF No. 42 at 1.) The Debtor also asserted that "[t]he MDA left [the Debtor] with the ministerial obligation to execute a quitclaim deed upon Ms. Phillips's request[.]" (Id.) In support of his request to execute the quitclaim deed, the Debtor offered two main arguments. First, he asserted that the Lake Ridge Property and the equity therein was excluded Case 25-11514 Doc 44 Filed 09/28/26 Entered 09/28/26 13:26:56 Desc Main Document Page 5 of 16

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from property of his bankruptcy estate by 11 U.S.C. § 541(d): "when the debtor holds only legal title, estate property includes that limited title, not the equitable interest the debtor does not hold."

(Id. at 3.) The Debtor argued that "[t]he starting point is the 2022 state-court property division, not merely the state of title records on the petition date." (Id.) The Debtor asserted that he retained no right to sale proceeds, buyout, continued occupancy, or beneficial ownership. His remaining duty was to execute the quitclaim deed upon request, subject to the mortgage-default condition. The absence of an executed deed on the petition date does not change the substance of the completed domestic-relations allocation: the equitable ownership and economic benefits of the property had already been awarded to Ms. Phillips.

(Id.) The Debtor offered the case of McCafferty v. McCafferty (In re McCafferty), 96 F.3d 192 (6th Cir. 1996), in support of his argument.

In setting forth his § 541(d) argument, the Debtor also cited to Mostoller v. Kelley (In re Kelley), 304 B.R. 331 (Bankr. E.D. Tenn. 2003), acknowledging that the holding is adverse to his position; however, the Debtor stated the case was "distinguishable on authority, posture and the requested remedy." (Memo. in Support, ECF No. 42 at 4.) The Debtor asserted that in In re Kelley, [t]he court concluded that the Chapter 7 trustee retained the debtor's one-half interest. Its conclusion rested substantially on the trustee's strong-arm powers under § 544(a) and Tennessee's recording statutes: an unrecorded transfer was ineffective against creditors and a hypothetical bona fide purchaser. The trustee then sought to sell both spouses' interest under § 363(h), in a liquidation case, to generate a creditor distribution.

(Id. at 4-5.) Additionally, because the McCafferty decision is from the Sixth Circuit, the Debtor asserted it was binding on this court whereas Kelly was "a single district-court decision" with no precedential value.²(Id. at 5.)

The second argument the Debtor offered in support of his Motion to Transfer was plead in the alternative. The Debtor asserted that if the Court were to determine that the Debtor's interest in the Lake Ridge Property was included in the bankruptcy estate, the Court should allow the Debtor to transfer the title under 11 U.S.C. §§ 363 and 1303.

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The proposed transfer is appropriate because it implements a prepetition court- approved property division, transfers no value that belonged beneficially to the estate, and clarifies title while avoiding later disputes. Approval of a limited quitclaim deed also remains consistent with Chapter 13 administration. The motion requests an appropriate plan-payment adjustment after evidence that the deed has been recorded. The order can preserve the mortgage creditor's lien rights and state expressly that the deed transfers only the debtor's record-title interest, if any, without transferring beneficial or economic estate property.

(Memo. in Support, ECF No. 42 at 6.) The Debtor offered no legal support for this argument. The Court conducted a hearing on these matters on September 10, 2026. Debtor was the only witness to testify. When asked by the Court how the property was titled, the Debtor stated it was solely in his name. The Court directed the Debtor to file a copy of the Deed with the Court. To date, no copy of the deed has been filed.

ANALYSIS

A. CHAPTER 13 TRUSTEE'S OBJECTION TO CONFIRMATION UNDER 11 U.S.C. § 1325(a)(4)

Section 1325(a)(4) of the Bankruptcy Code provides that a chapter 13 plan can only be confirmed if the debtor can establish that "the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date[.]" 11 U.S.C.A. § 1325(a)(4). This provision is commonly referred to as the best interests of the creditors test and "requires the court to project what the allowed unsecured claims in this case would receive had nonexempt property been liquidated by a chapter 7 trustee." In re Scholl, 605 B.R. 163, 185 (Bankr. S.D. Ohio 2019) (citations omitted); United States v. Chavis (In re Chavis), 47 F.3d 818, 824 (6th Cir. 1995) ("In a Chapter 13 action, the debtor retains the assets in exchange for an agreement to make periodic payments to the creditors. The payments to the creditors must equal or exceed the amount that the creditors would receive under Chapter 7.") "Part of this calculation is determining how much, if any, equity the Debtors may have in real property." In re Crum, 479 B.R. 734, 743 (Bankr. S.D. Ohio 2012). Case 25-11514 Doc 44 Filed 09/28/26 Entered 09/28/26 13:26:56 Desc Main Document Page 7 of 16

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A debtor's property interests are only included in the § 1325(a)(4) calculation if they are nonexempt property of the estate. In re Doddy, 164 B.R. 276, 278 (Bankr. S.D. Ohio 1994).

"Property of the estate" is broadly defined by § 541(a) of the Bankruptcy Code to include "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). In Butner v. United States, 440 U.S. 48, 99 S. Ct. 914 (1979), the Supreme Court held:

[p]roperty interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving a "windfall merely by reason of the happenstance of bankruptcy."

Id. at 55 (quoting Lewis v. Manufacturers Nat'l, Bank, 364 U.S. 603, 609, 81 S. Ct. 347, 350 (1961)). Accordingly,

[w]hen disputes over whether property is included in the estate arise, the bankruptcy court will determine the status and nature of the debtor's ownership or interest in the disputed property under applicable non-bankruptcy law, often state law, as of the time the bankruptcy petition was filed. If a debtor has an interest in the property under non-bankruptcy law, the court must then determine whether the interest is included in the estate utilizing federal bankruptcy law.

Tidewater Finance Co. v. Curry (In re Curry), 347 B.R. 596, 600 (B.A.P. 6th Cir. 2006), aff'd, 509 F.3d 735 (6th Cir. 2007) (citing Butner, 440 U.S. at 54-55; United States v. Whiting Pools, Inc.,

462 U.S. 198, 205, 103 S. Ct. 2309, 2313 (1983)). Thus, to determine whether the Debtor has a qualifying interest in the Lake Ridge Property that may be considered under 11 U.S.C. § 1325(a)(4), the Court must first examine Tennessee law.

Tennessee Code Annotated § 16-1-108 provides that "[c]ourts having jurisdiction to sell lands, instead of ordering parties to convey, may divest and vest title directly by decree, or empower the clerk to make title."³Tennessee Code Annotated § 16-1-109 provides that "[t]he

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decree or deed of the clerk, as the case may be, has the same force and effect as a conveyance by the party, and shall be registered." Tennessee Code Annotated § 66-26-101 provides that [a]ll of the instruments mentioned in § 66-24-101 [which includes marriage settlements and judgments affecting title] shall have effect between the parties to the same, and their heirs and representatives, without registration; but as to other persons, not having actual notice of them, only from the noting thereof for registration on the books of the register, unless otherwise expressly provided. Tenn. Code Ann. § 66-26-101. Accordingly, as between parties to a divorce, "the divorce decree incorporating the terms of the MDA [is] effective to convey an interest in … property" regardless of whether a deed is prepared or the divorce decree is registered. Roberts, 2011 WL 1486629 at *4. However, "an unregistered instrument affecting an interest in real property … cannot bind third parties without actual notice until the instrument is properly registered." Holiday Hosp. Franchising, Inc. v. States Res., Inc., 232 S.W.3d 41, 48 (Tenn. Ct. App. 2006) (citing Tenn. Code Ann. § 66-26-101)); In re Frasier, 47 B.R. 864, 865 (Bankr. M.D. Tenn. 1985) ("Under Tennessee law, a divorce decree must be registered to be effective as a conveyance of real property against creditors and bona fide purchasers of the property.").

Tennessee property law and the relevant registration requirements were thoroughly addressed by the learned Judge Stair in Mostoller v. Kelley (In re Kelley), 304 B.R. 331 (Bankr. E.D. Tenn. 2003). The Debtor argues that Kelley is "distinguishable on authority, posture and the requested remedy." (Memo. in Support, ECF No. 42 at 4.) Although it is true that the ultimate issue in Kelley was different (whether the chapter 7 trustee could sell real property free and clear of liens pursuant to the strong-arm provision of 11 U.S.C. § 544), the first hurdle the Kelley court had to clear was determining whether the property at issue was property of the estate. The relevant facts in Kelley are similar to the ones in the case at bar. In Kelley, the debtor and her husband obtained a divorce in Tennessee state court in June 2000. The parties' marital dissolution agreement, which was incorporated into the final decree of divorce, awarded the parties' real property to the husband and provided that the wife would execute a quitclaim deed to effectuate a transfer of her interest in the property. The wife never executed the quitclaim deed and neither party recorded the final decree of divorce with the county Register of Deeds. Two years later, the wife filed a chapter 7 petition for bankruptcy relief. The chapter 7 trustee filed an adversary proceeding seeking authority to sell the real property awarded to the husband in the state Case 25-11514 Doc 44 Filed 09/28/26 Entered 09/28/26 13:26:56 Desc Main Document Page 9 of 16

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court divorce pursuant to § 544's strong arm authority. The debtor-wife opposed the relief, arguing that the property was not property of the estate and, therefore, the trustee had no right to sell it. In analyzing the case, Judge Stair first addressed the debtor-wife's contention that the property was not property of her bankruptcy estate. Recognizing that property rights are determined by state law, the Kelley court reviewed the relevant statutes and concluded Tennessee law "provides the answer to the first question of whether the Debtor's bankruptcy estate has an interest as co-owner in the Real Property in the affirmative." In re Kelley, 304 B.R. at 335. The court discussed Tennessee Code Annotated §§ 16-1-108 and 16-1-109. Although § 16-1-108 allows divorce courts to divest and vest property by decree, the court held that "the Final Decree only provides that the Defendant was 'awarded' the Real Property but that the conveyance was to be accomplished by quit claim deed from the Debtor to the Defendant." In re Kelley, 304 B.R. at

336. The MDA in the case at bar has identical language. It "awarded" the Lake Ridge Property to Ms. Phillips, but provided that the Debtor was to execute a quitclaim deed at her request. The Kelley court also reviewed Tennessee Code Annotated §§ 66-24-101 and 66-26-101 and held that an unrecorded divorce decree is ineffective "as a conveyance of real property against creditors and bona fide purchasers of the property." In re Kelley, 304 B.R. at 337 (citations omitted). Thus, without a recorded deed, an unrecorded divorce decree does not effect a transfer of property rights. As such, debtor's interest in the property was property of the estate. In reaching this decision, the Kelley court did not discuss a chapter 7 trustee's strong-arm powers. Nor did it include 11 U.S.C. § 544 in its consideration. It merely asked whether the real property was property of the estate pursuant to 11 U.S.C. § 541(a).

The Debtor in the case at bar offered no argument as to why or how Judge Stair's conclusion on the § 541 issue was inapplicable to the decision in this case. He also failed to address the fact that the schedules and statements filed in this case belie his position. When asked on his SOFA whether he held or controlled property that someone else owns, he answered "no." The Debtor has never amended his SOFA to change this answer. Schedule A/B asks debtors to

"Describe Each Residence, Building, Land, or Other Real Estate You Own or Have an Interest In."

The Debtor listed the Lake Ridge Property on his amended A/B filed on February 10, 2026. He indicated that the "Current value of the portion you own" was $330,950.00. (Amended A/B, ECF No. 21 (emphasis added).) He also indicated his "ownership interest" as "Joint tenant" on this Case 25-11514 Doc 44 Filed 09/28/26 Entered 09/28/26 13:26:56 Desc Main Document Page 10 of 16

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schedule. (Id.) Despite his argument that he only holds "bare record title," the Debtor has not further amended Schedule A/B to comport with this position.

Statements made in bankruptcy schedules, the statement of financial affairs, the 341 meeting of creditors, and testimony given at Rule 2004 exams are made under oath. …

A debtor has a paramount duty to carefully consider all questions included in the Schedules and Statement of Financial Affairs] and see that each is answered accurately and completely. The burden is on the debtors to complete their schedules accurately. A debtor is assumed to have read his bankruptcy petition and schedules before signing them under pains and penalties of perjury, and he is responsible for their contents.

Church Joint Venture, L.P., v. Blasingame (In re Blasingame), 559 B.R. 692, 697, 699 (B.A.P. 6th Cir. 2016) (cleaned up).

In a case directly on point, In re Hilliard, No. 11-13347, 2012 WL 1067691 (Bankr. E.D. Tenn. Mar. 12, 2012), the bankruptcy court determined "that the value of the recovery from potential avoidance actions in a hypothetical chapter 7 should be included in what would be distributed to creditors in a Chapter 7" in a § 1325(a)(4) calculation. Id. at *5 (citing KEITH M. LUNDIN & WILLIAM H. BROWN, CHAPTER 13 BANKRUPTCY § 160.1 at ¶ 30 (4th ed.2009)); see also In re Engle, 496 B.R. 456, 461 (Bankr. S.D. Ohio 2013) (cleaned up) ("Therefore, where such avoidance actions would be successful in Chapter 7, a Chapter 13 Debtor must propose a plan which would equal or exceed the payout to creditors under Chapter 7, taking into account the value of the avoidance actions."); Countrywide Home Loans v. Dickson (In re Dickson), 427 B.R. 399, 405 (B.A.P. 6th Cir. 2010), aff'd, 655 F.3d 585 (6th Cir. 2011) (recognizing that "[t]heoretically at least, the analysis of what would be distributed to unsecured creditors in a hypothetical Chapter 7 liquidation [in the context of §1325(a)(4)] should assume, among other things, avoidance of preferences, fraudulent conveyances and unperfected liens.") In so holding, the Hilliard court determined that a property interest set forth in an unrecorded divorce decree must be included in the best interests of the creditors calculation under 11 U.S.C. § 1325(a)(4). In Hilliard, a pre-petition marital dissolution agreement awarded a mobile home and small acreage to the wife. The marital dissolution agreement further provided that if and when the real property was sold, the wife and the husband would each receive one-half of the proceeds. Case 25-11514 Doc 44 Filed 09/28/26 Entered 09/28/26 13:26:56 Desc Main Document Page 11 of 16

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Following execution of the marital dissolution agreement, the husband executed a quitclaim deed transferring all of his interest in the property to the wife. The quitclaim deed was recorded with the Register of Deeds, but neither the marital dissolution agreement nor the divorce decree were. Upon filing for chapter 13 relief, the debtor-wife listed the property on Schedule A and indicated her ex-husband held a one-half interest therein. She indicated on her SOFA that she held no property for another. The debtor-wife valued the mobile home and acreage at $60,000 and indicated the property was lien-free. She claimed a $25,000 homestead exemption in the property under Tennessee law. She proposed a plan that projected a 17.5% payout to unsecured creditors. The chapter 13 trustee objected alleging that the proposed plan did not meet the best interests of the creditors test under § 1325(a)(4). The trustee stated that in a hypothetical chapter 7 case, he could avoid the husband's one-half interest in the property. As such, unsecured creditors would receive $60,000.00 minus the $25,000.00 exemption for a total possible payout of $35,000.00 versus the $4,180.00 projected under the proposed chapter 13 plan. The debtor-wife argued that the marital dissolution agreement "created an equitable interest in the property on behalf of the debtor's ex-husband and his interest would be excluded from the bankruptcy estate, and, therefore, should be excluded from the calculation of what assets would be available to creditors in a hypothetical chapter 7." In re Hilliard, 2012 WL 1067691 at *1. In analyzing the case, the bankruptcy court engaged in a thorough review of the parties' briefs and the relevant law. The court recognized that "[t]he issues in this case are located at the crossroads of several legal concepts and competing policies." Id. at *4. The court then held that … Tennessee courts have viewed the marital dissolution agreement as a contract. If the marital dissolution agreement is not complied with, it gives rise to a claim. To the extent that a divorce decree also divests one party of a property interest, Tennessee law requires the recipient of the interest to perfect his interest in the real property by putting that interest of record. Using the same reasoning, this court finds that if the divorce decree grants an interest in property, that interest must also be recorded to be effective against third parties. Tenn. Code Ann. § 25-5-102. If the third party fails to record his interest, the bankruptcy courts will not impose a constructive [trust] on the debtor's interest because of the bankruptcy policy of ensuring equitable distribution. XL/Datacomp, Inc. v. Wilson (In re Omegas Group, Inc.), 16 F.3d 1443 (6th Cir.1994). If the property in question is not subject to the claims of creditors or will not affect the distribution available to creditors, then, where there is a divorce decree or MDA granting an interest in property to a non Case 25-11514 Doc 44 Filed 09/28/26 Entered 09/28/26 13:26:56 Desc Main Document Page 12 of 16

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debtor, the court will make an exception to the "no imposition of a con[s]tructive trust" rule, and protect the division of the property by imposing a constructive trust. McCafferty v. McCafferty (In re McCafferty), 96 F.3d 192 (6th Cir1996). In re Hilliard, 2012 WL 1067691, at *4 (other citations omitted).⁴ As in the case at bar, the parties in Hilliard failed to record the divorce decree and, as such,

"there is no notice in the real property records of the ex-spouse's interest. A chapter 7 trustee could avoid the interest and sell the property free and clear of Mr. Hilliard's interest." Id. at *5. Inherent in this conclusion was the fact that "[t]he value of the real property exceeds the exemption value so there would be some value available to creditors in a chapter 7 such that the equitable considerations of bankruptcy come into play." Id. Consequently, the court held that imposition of a constructive trust to remove the property from property of the estate was unwarranted in the case before it. The court cautioned, however, that the entire value of the property at issue would not be considered in the § 1325(a)(4) analysis.

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[T]he calculation is not a simple comparison of the sum of the value of the debtor's equity plus the value of the avoided interest to the value of distributions to unsecured creditors under the plan. The value of the avoided interest must reflect the probability of success of the hypothetical chapter 7 trustee, the expense of the recovery action, the claims created by the avoidance, the dilution of the distribution to the unsecured creditors, and any other consideration that might affect the dividend that creditors in the hypothetical chapter 7 would receive. Id.

Hilliard and Kelley confirm that the Debtor's interest in the Lake Ridge Property is part of his bankruptcy estate. Although the division of property was set forth in the Divorce Decree, neither the Debtor nor Ms. Phillips registered the decree with the Hamilton County Register of Deeds. And, because Ms. Phillips has not requested the Debtor quitclaim the property to her, no deed has been prepared or recorded. Consequently, there is no notice in the real property records of Ms. Phillips' full interest in the Lake Ridge Property.

The Debtor listed the property on his schedules and indicated the value of the portion he owned was $330,950.00. The scheduled value of the property is $661,900.00 and the balance of the secured claim is $452,633.47. These figures mean there is $209,266.53 in equity in the Lake Ridge Property. Assuming the Debtor owns the property as a joint tenant, his share of the equity in the property is $104,633.27.⁵Thus, there is equity available to distribute to unsecured creditors and In re McCafferty does not apply to exclude that property under § 541(d). McCafferty, 96 F.3d at 196 ("The Supreme Court has noted, however, that the policy of ratable distribution would not be relevant where the property at issue was not subject to distribution to creditors."). As set forth in In re Hilliard, the imposition of a constructive trust is unwarranted in this case. The Debtor's interest in the Lake Ridge Property's equity is property of the estate and may be captured by the Chapter 13 Trustee for payment to the Debtor's creditors. The Court cautions the parties, however, that in determining the amount of equity the trustee may capture, they will need to factor in the considerations set forth by the court in Hilliard.

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B. DEBTOR'S MOTION TO TRANSFER PROPERTY

The Debtor's motion to quitclaim his interest in the Lake Ridge Property to Ms. Phillips is also before the Court. In his memorandum in support of his motion, the Debtor stated that if the Court determines that the Debtor's interest in the property is property of the estate, the Debtor should be allowed to transfer his record-title interest to his ex-wife. The proposed transfer is appropriate because it implements a prepetition court- approved property division, transfers no value that belonged beneficially to the estate, and clarifies title while avoiding later disputes.

Approval of a limited quitclaim deed also remains consistent with Chapter 13 administration. The motion requests an appropriate plan-payment adjustment after evidence that the deed has been recorded. The order can preserve the mortgage creditor's lien rights and state expressly that the deed transfers only the debtor's record-title interest, if any, without transferring beneficial or economic estate property.

(Memo. in Support, ECF No. 42 at 6.) The Debtor offered no reason for this request other than asserting that executing a quitclaim deed transferring his record-title interest to Ms. Phillips would

"avoid[ ] later disputes." In making this request, however, the Debtor ignores the plain language of the MDA. The MDA provided that the Debtor "shall execute a Quitclaim Deed to convey his interest in the Marital Residence to the Wife upon Wife's request." (MDA, ECF No. 42 at 15.) The Debtor unequivocally stated in his Motion to Transfer that Ms. Phillips has not yet requested execution of a quitclaim deed. Ms. Phillips' March 18, 2026 letter to the Court reinforces this conclusion. (See Letter at 1, ECF No. 30 (I do NOT want or approve any … modification to my property or our decree.")); see also Long v. McAllister-Long, 221 S.W.3d 1, 9 (Tenn. Ct. App. 2006) (citations omitted); Brocato v. Young, No. M202300222COAR3CV, 2024 WL 19889, at *3 (Tenn. Ct. App. Jan. 2, 2024) (cleaned up) ("Where parties contract as to rights and obligations in a marriage dissolution agreement, and that agreement is incorporated into the judgment of divorce, courts should construe the MDA like other contracts with respect to its interpretation, its meaning and effect.") Thus, the Court sees no basis to transfer the Lake Ridge Property.

CONCLUSION

For the reasons set forth herein, the Court concludes that the Debtor's interest in the Lake Ridge Property is property of the estate and any equity the Debtor has therein may be captured by Case 25-11514 Doc 44 Filed 09/28/26 Entered 09/28/26 13:26:56 Desc Main Document Page 15 of 16

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the Chapter 13 Trustee for the benefit of the unsecured creditors subject to the considerations set forth herein. Additionally, the Court concludes that there is no reason to allow the Debtor to execute a quitclaim deed to transfer the record title to Ms. Phillips. An order will be entered in accordance herewith.

Mailing Information

Debtor T. Verner Smith, attorney for Debtor Timothy Ivy, Chapter 13 Trustee Case 25-11514 Doc 44 Filed 09/28/26 Entered 09/28/26 13:26:56 Desc Main Document Page 16 of 16

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