551 B.R. 807
Bankr. E.D. Mich.2016Background
- Debtor filed Chapter 13 and obtained confirmation of a plan providing 100% payment to unsecured creditors; plan required large monthly payments.
- Debtor made post-confirmation plan payments but later fell behind and voluntarily moved to dismiss the case after ~30 months; dismissal was entered on January 20, 2016.
- At dismissal the Chapter 13 trustee held $16,614.96 (Funds); the trustee disbursed those Funds to four unsecured creditors on February 4, 2016.
- Debtor moved to compel the trustee to recoup the disbursed Funds and return the remaining Funds to her under § 349(b)(3).
- Trustee argued § 1326 governs trustee distributions and that Harris v. Viegelahn (conversion context) is inapplicable to dismissals; trustee also sought a § 349(b)(3) exception for cause.
Issues
| Issue | Plaintiff's Argument (Bateson) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Who is entitled to funds held by a Chapter 13 trustee when a confirmed Chapter 13 case is dismissed post‑confirmation? | §349(b)(3) revests estate property to debtor on dismissal; trustee must return funds to debtor. | §1326(a)(2) requires distribution to creditors under confirmed plan; trustee should pay creditors. | Funds held by trustee at dismissal must be returned to debtor absent cause to order otherwise. |
| Whether §1326 governs post‑confirmation funds on dismissal | §1326 governs only pre‑confirmation payments, so it does not compel distributions after dismissal. | §1326 creates a coherent distribution scheme (confirmed → pay creditors); trustee obligations persist unless case ends. | Trustee duties under §1326 cease when Chapter 13 ends; dismissal terminates trustee's authority to distribute under the plan. |
| Whether Harris v. Viegelahn (conversion) controls dismissal cases | Harris reasoning (postpetition wages excluded on conversion) supports returning post‑confirmation funds on termination of Chapter 13, so it applies to dismissal as well. | Harris addressed conversion and relied on §348(e) terminating trustee service; dismissal differs because §349 lacks a direct termination clause. | Harris applies by analogy: termination of Chapter 13 (conversion or dismissal) ends trustee authority and supports returning undistributed post‑petition funds to debtor. |
| Whether trustee showed "cause" under §349(b)(3) to order distribution to creditors instead of returning funds to debtor | No misconduct alleged; typical Chapter 13 facts (missed payments, stayed period) do not establish cause. | Trustee: debtor controlled timing of dismissal, creditors received less than promised, and some funds already disbursed — these facts warrant ordering otherwise. | Trustee's proffered facts do not constitute cause; court declines to order otherwise under §349(b)(3). |
Key Cases Cited
- Harris v. Viegelahn, 135 S. Ct. 1829 (2015) (Supreme Court holding undistributed post‑petition wages in converted Chapter 13 must be returned to debtor; trustee authority ends on termination)
- In re Michael, 699 F.3d 305 (3d Cir. 2012) (postpetition wages are not property of creditors)
- Williams v. Marshall, 526 B.R. 695 (N.D. Ill. 2014) (held undistributed Chapter 13 funds should be refunded to debtor on dismissal)
- In re Parrish, 275 B.R. 424 (Bankr. D.D.C. 2002) (held undistributed funds should be distributed under confirmed plan)
- Ellmann v. Baker (In re Baker), 791 F.3d 677 (6th Cir. 2015) (lower courts should follow Supreme Court dicta absent strong reason not to)