In re Edwards
538 B.R. 536
Bankr. S.D. Ill.2015Background
- In multiple Chapter 13 cases, debtors had confirmed plans, but their cases were subsequently dismissed (voluntarily or involuntarily) while the Chapter 13 trustee held post-petition wages that had not yet been distributed.
- The trustees asked the court whether, in light of Harris v. Viegelahn, they must return those undistributed post-petition wages to debtors or distribute them to creditors under the confirmed plans.
- Harris held that when a Chapter 13 case is converted to Chapter 7, post-petition wages in the trustee’s possession must be returned to the debtor, relying on 11 U.S.C. § 348(f) and § 348(e).
- The legal dispute here concerns dismissal (not conversion) and the interplay between 11 U.S.C. § 1326(a)(2) (trustee distributions under a confirmed plan) and 11 U.S.C. § 349(b) (effect of dismissal, including revesting estate property).
- The court concluded § 1326(a)(2) governs payments made before confirmation and does not direct treatment of post-confirmation funds upon dismissal; § 349(b)(3) revests estate property to the prepetition owner on dismissal.
- The court held that dismissal effectively vacates the confirmed plan and that post-petition wages held by the trustee at dismissal must be returned to the debtor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are undistributed post‑petition wages held by a Chapter 13 trustee at the time of dismissal payable to creditors under the confirmed plan or returned to the debtor? | Trustees (and minority authority) contend § 1326(a)(2) requires distribution per the confirmed plan. | Debtors (and majority authority) rely on § 349(b)(3) that dismissal revests estate property in the debtor, so funds must be returned. | Court held funds must be returned to the debtor under § 349(b)(3); dismissal vacates the plan and prevents trustee distributions under it. |
Key Cases Cited
- Harris v. Viegelahn, 135 S. Ct. 1829 (U.S. 2015) (conversion case holding post‑petition wages held by Chapter 13 trustee must be returned to debtor)
- Nash v. Kester (In re Nash), 765 F.2d 1410 (9th Cir. 1985) (funds held at dismissal/termination must be returned to debtor)
- In re Michael, 699 F.3d 305 (3d Cir. 2012) (debtor retains vested interest in funds transferred to Chapter 13 trustee)
- Williams v. Marshall (In re Marshall), 526 B.R. 695 (N.D. Ill. 2014) (applies § 349 to return post‑petition wages on dismissal)