Harris v. Viegelahn, 135 S. Ct. 1829

Charles Harris filed Chapter 13; plan required $530/month payroll withholding to Chapter 13 trustee Viegelahn, with $352/month allocated to mortgage lender Chase and remainder to other creditors.
Chase foreclosed on Harris’s home; the trustee continued collecting the $530 but stopped paying Chase, causing postpetition wages to accumulate with the trustee (about $5,519.22).
Harris converted his Chapter 13 case to Chapter 7; ten days later the Chapter 13 trustee distributed the accumulated funds to counsel, herself (fee), secured creditor, and several unsecured creditors.
Harris sued seeking return of the undistributed postpetition wages; the Bankruptcy Court and District Court ordered refund, but the Fifth Circuit reversed, holding the trustee must distribute the funds to creditors.
The Supreme Court granted certiorari to resolve circuit conflict over whether undistributed postpetition wages held by a Chapter 13 trustee at conversion must be returned to the debtor or paid to creditors.

Issue	Plaintiff's Argument (Harris)	Defendant's Argument (Viegelahn)	Held
Who is entitled to postpetition wages held by a Chapter 13 trustee at the time of conversion to Chapter 7?	Undistributed postpetition wages must be returned to the debtor because §348(f) excludes postpetition earnings from the converted Chapter 7 estate.	Trustee must distribute accumulated wages to creditors pursuant to the confirmed Chapter 13 plan and §1326/§1327.	The Court held the debtor is entitled to return of postpetition wages not yet distributed by the Chapter 13 trustee (absent bad-faith conversion).
Whether a terminated Chapter 13 trustee may continue distributing funds to creditors after conversion	Conversion terminates trustee’s authority; continued distributions are incompatible with §348(e) and §348(f).	Trustee’s wind-up duties and plan confirmation vest creditors; she may disburse remaining funds per the plan.	Court held conversion terminates trustee’s authority to make plan payments; trustee must return undistributed postpetition wages to debtor; wind-up duties do not include making such distributions.

United States v. Detroit Timber & Lumber Co., 200 U.S. 321 (statement that a syllabus is not part of the opinion)
Grogan v. Garner, 498 U.S. 279 (1991) (bankruptcy’s fresh-start policy discussed)
Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) (reference to bankruptcy policy re: honest but unfortunate debtor)
In re Michael, 699 F.3d 305 (3d Cir. 2012) (held undistributed postpetition wages must be returned to debtor on conversion)
In re Harris, 757 F.3d 468 (5th Cir. 2014) (reversed by the Supreme Court; held trustee should distribute accumulated wages to creditors)
In re Calder, 973 F.2d 862 (10th Cir. 1992) (Court of Appeals position that postpetition earnings become part of converted Chapter 7 estate)
In re Lybrook, 951 F.2d 136 (7th Cir. 1991) (similar view that postpetition acquisitions become Chapter 7 estate property)