In Re John F. Flynn, Debtor, Elsie C. Stine v. Richard K. Diamond, Trustee

Elsie Stine, the co-owner of real property with the bankruptcy debtor, John Flynn, appeals the Bankruptcy Appellate Panel’s (BAP) decision that she was required to pay a pro-rata share of the attorney’s fees incurred by the bankruptcy trustee during the sale of the property. Stine also appeals the BAP’s decision to permit the trustee to withhold Stine’s share of the sale proceeds. We have jurisdiction under 28 U.S.C. § 158 (d), and we reverse.

BACKGROUND

Elsie Stine’s son, John Flynn, filed a Chapter 7 bankruptcy case on July 30, 2001. Richard Diamond was appointed trustee. The property of Flynn’s estate included a 50 percent interest in real property located in Downey, California. The other half interest was owned by Stine.

At the time the bankruptcy case was filed, the property was the subject of a state court partition action between Stine and Flynn. After the trustee stepped in and continued to litigate the partition action, the trustee and Stine agreed to sell the property under 11 U.S.C. § 363 (h). They reserved, without resolving, other claims in the partition action.

The sale of the property produced approximately $120,000 in net proceeds after the payment of…