In re Darden
474 B.R. 1
Bankr. D. Mass.2012Background
- Debtor Frances J. Darden filed a voluntary Chapter 13 petition on January 26, 2007, owning the property at 374 Harvard Street, Dorchester, MA encumbered by Fremont and GMAC mortgages.
- The Debtor commenced a State Court action on May 2, 2007 alleging violations of Mass. G.L. c. 93A, TILA, MCCCDA, and common law fraud against Fremont, GMAC, and related mortgage professionals.
- A 2008 confirmed Plan provided a 20% dividend to general unsecured creditors and a balloon payment funded by net litigation proceeds; confirmations ordered six monthly payments and a final balloon by the sixtieth month.
- The Post-Confirmation Plan (amended September 2010) kept the 20% unsecured dividend but recharacterized the balloon payment; the Plan remained in effect and the Debtor sought to prosecute the State Court Action.
- GMAC and Debtor entered a Settlement (June 10, 2011) in which GMAC would withdraw its claim, release Debtor, and pay $20,000 to Debtor held in trust; settlement was approved July 7, 2011.
- In March 2012 the Trustee moved to turnover the GMAC settlement proceeds and sought dismissal; Debtor moved to dismiss under 11 U.S.C. § 1307(b); the Court would dismiss but address disposition of funds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Effect of dismissal on GMAC proceeds and undisributed payments | Darden contends § 349(b)(3) revests proceeds and undisbursed payments in the Debtor. | Bankowski argues dismissal does not automatically revest; funds remain subject to the Plan and turnover and § 349(b) relief can apply. | Dismissal does not automatically revest; § 349(b) provides for relief and allows turnover to creditors. |
| Does the Post-Confirmation Plan require turnover of GMAC proceeds to the Trustee for unsecured creditors? | Darden argues the Plan reserves the GMAC proceeds for the Debtor or post-dismissal use. | Bankowski argues the Plan unambiguously requires turnover to the Trustee for unsecured creditors. | Yes; the Post-Confirmation Plan obligates turnover of GMAC proceeds to the Trustee for distribution. |
| Whether § 349(b) supports ordering distribution of GMAC proceeds despite dismissal | Darden contends revesting would prevent the Trustee from distributing proceeds. | Bankowski argues cause exists to order distribution to unsecured creditors. | Yes; cause exists to distribute the GMAC proceeds to unsecured creditors notwithstanding dismissal. |
| Interpretation of 'resolution of the litigation' as it affects distribution of GMAC proceeds | Darden reads 'resolution of the litigation' to require full resolution against all defendants before distribution. | Bankowski reads it to trigger distribution upon Debtor’s receipt of proceeds and resolution against any defendant, consistent with the Plan. | The Court interprets as against any defendant; distribution to unsecureds occurs upon Debtor’s receipt of proceeds and Plan-mandated resolution. |
| Whether undisbursed plan payments must revest in the Debtor or are distributable | Darden argues the undisbursed plan funds revest to Debtor upon dismissal. | Bankowski argues the 20% cap and plan terms limit distributions; revesting does not occur. | Undisbursed plan payments do not revest; they must be returned to Debtor, subject to the Plan terms and distributions to creditors. |
Key Cases Cited
- In re Parrish, 275 B.R. 424 (Bankr.D.D.C. 2002) (§ 349(b) revesting and treatment of post-petition claims; debtors' plan implications)
- In re Sentinel Mgmt. Group, Inc., 398 B.R. 281 (Bankr.N.D.Ill. 2008) (good faith and contract interpretation in plan contexts)
- In re Harvey, 213 F.3d 318 (7th Cir. 2000) (plan as contract; Trustee as party to contract)
- United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (U.S. 1988) (holistic statutory construction; interpretation consistent with entire statutory scheme)
- In re Genovese, 91 B.R. 831 (Bankr.E.D. Tenn. 1988) (example of ‘cause’ under § 349(b) to enforce court orders post-dismissal)
- In re Hufford, 460 B.R. 172 (Bankr.N.D.Ohio 2011) (cause to distribute plan funds when dismissal would prejudice creditors)
- In re Torres, 2000 WL 1515170 (Bankr.D.Idaho 2000) (delay in settlements and resulting creditor harm; distributions upon dismissal)
- In re Verdunn, 210 B.R. 621 (Bankr.M.D.Fla. 1997) (trustee distribution and vesting of plan payments)