603 B.R. 11
Bankr. S.D. Ohio2019Background
- Chapter 13 trustee filed unopposed post-confirmation motions to dismiss six Chapter 13 cases and sought guidance on how to distribute funds he held at dismissal. The court set a hearing to resolve distribution issues.
- Trustee held modest sums in each case (ranging from ~$30 to ~$4,961) and proposed to distribute funds according to confirmed plans, including paying unpaid attorney fees as administrative claims.
- Trustee and amici argued § 1326(a)(2) and (c) require distribution to creditors (and counsel) under a confirmed plan; they urged distinguishing dismissal from conversion (Harris v. Viegelahn).
- No party sought or established "cause" under 11 U.S.C. § 349(b) to order a different distribution.
- The court granted dismissal but ordered all funds held by the trustee returned to the debtors, rejecting the trustee’s proposed post-dismissal distributions to counsel/creditors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Trustee may distribute funds held at post-confirmation dismissal to creditors/counsel under the confirmed plan | Trustee: §1326(a)(2)/(c) directs trustee to distribute post-confirmation payments in accordance with the plan, so funds should go to creditors/attorneys | Debtors: Funds revest in debtors on dismissal under §349(b)(3); trustee lacks authority to implement plan after case is over | Funds held at dismissal must be returned to debtors absent court-ordered "cause" under §349(b) |
| Whether Harris v. Viegelahn (conversion) limits application to conversion only or controls dismissal too | Trustee: §348(e) (conversion) differs from §349 (dismissal); absence of explicit trustee-termination language in §349 means trustee should still distribute | Court: The functional result is the same—case is over at dismissal; no basis to treat dismissal differently from conversion for revesting funds | Harris rationale applies; dismissal renders plan defunct and trustee cannot distribute to creditors post-dismissal |
| Whether post-petition earnings/recoveries can be "revested" in pre‑petition holder under §349(b)(3) | Trustee: Post-petition wages and recoveries did not exist pre-petition, so §349(b)(3) cannot require return to pre-petition holder; Congress intended distribution under plan | Court: §1306 makes post-petition earnings estate property but §349 seeks to restore pre‑filing positions where practicable; returning such funds best effectuates revesting | Revestment to the debtor upon dismissal is appropriate for wages and similar post‑petition receipts, absent cause to do otherwise |
| Whether unpaid attorney fees may be paid from trustee funds on dismissal as administrative expenses | Trustee: §1326(a)(2) permits withholding/administrative payment; fairness and symmetry argue counsel be paid post-confirmation on dismissal | Debtors: Payment to counsel after dismissal interferes with debtor’s right to dismiss and is not authorized absent §349(b) cause | Absent a court finding of cause under §349(b), trustee may not pay administrative claims from funds at post-confirmation dismissal; funds returned to debtor |
Key Cases Cited
- Harris v. Viegelahn, 135 S. Ct. 1829 (2015) (Supreme Court holding funds held by Chapter 13 trustee at conversion must be returned to debtor because plan is defunct on conversion)
- Viegelahn v. Lopez, 897 F.3d 663 (5th Cir. 2018) (trustee must return funds held at post-confirmation dismissal absent cause under §349(b))
- Nash v. Kester (In re Nash), 765 F.2d 1410 (9th Cir. 1985) (funds held by Chapter 13 trustee must be returned to debtor on dismissal)
- Michael v. Dunlap (In re Michael), 699 F.3d 305 (3d Cir. 2012) (creditors’ interests in trustee-held plan payments do not vest until trustee distributes them)