571 B.R. 767
Bankr. E.D. Mich.2017Background
- Debtor filed a Chapter 13 case in which no plan has been confirmed; Trustee holds approximately $52,503.78 in plan payments.
- Debtor’s counsel filed a fee application; the Court entered an order denying that application without prejudice as premature (Docket #87).
- Debtor moved for reconsideration, arguing that if the case is dismissed before fees are allowed/paid, the Trustee must return all funds to the Debtor (citing Harris v. Viegelahn and In re Bateson).
- Debtor states intent to voluntarily dismiss the Chapter 13 case (not convert to Chapter 7) and recover the funds on hand to obtain a residence.
- Trustee and the Court interpret 11 U.S.C. § 1326(a)(2) to require the Trustee to deduct and pay allowed administrative claims (including approved attorney fees under § 503/§ 330) before returning funds to the Debtor on pre-confirmation dismissal.
- Court denies the motion for reconsideration but grants limited relief: counsel may refile the fee application within 7 days after dismissal, and Trustee must hold funds until the fee application is resolved and may pay allowed fees from funds on hand before returning remaining funds to Debtor.
Issues
| Issue | Debtor's Argument | Trustee/Court's Argument | Held |
|---|---|---|---|
| Whether Trustee must return funds to debtor on pre-confirmation dismissal without paying attorney fees | Debtor: If case dismissed before fees allowed/paid, Trustee must return all funds to Debtor (cites Harris, Bateson) | Trustee/Court: §1326(a)(2) requires Trustee to deduct unpaid allowed §503(b) claims (including allowed attorney fees) before returning funds | Court: Trustee must pay allowed administrative claims first under §1326(a)(2); Harris is distinguishable |
| Whether Harris v. Viegelahn controls pre-confirmation dismissals | Debtor: Harris supports returning funds to debtor | Court: Harris addressed post-confirmation conversion and relied on §348(e); not applicable to pre-confirmation dismissal governed by §1326(a)(2) | Court: Harris does not apply to pre-confirmation dismissal |
| Whether Bateson controls dismissal after confirmation | Debtor: Bateson extends Harris reasoning to dismissals post-confirmation | Court: Bateson addressed post-confirmation payments; distinguishable because this case is pre-confirmation | Court: Bateson is distinguishable; §1326(a)(2) controls pre-confirmation dismissals |
| Procedural relief for fee application after dismissal | Debtor: Wants to dismiss and recover funds immediately | Court/Trustee: Allow counsel to file fee application and allow Trustee to pay allowed fees from funds on hand | Court: Denies reconsideration; permits counsel to refile within 7 days after dismissal; Trustee must hold funds until court rules and pay allowed fees first |
Key Cases Cited
- Harris v. Viegelahn, 135 S. Ct. 1829 (U.S. 2015) (Supreme Court held trustee must return post-confirmation plan payments to debtor after conversion to Chapter 7)
- In re Brandon, 537 B.R. 231 (Bankr. D. Md. 2015) (holds §1326(a)(2) requires trustee to deduct and pay allowed §503(b) administrative expenses on pre-confirmation dismissal)
- In re Kirk, 537 B.R. 856 (Bankr. N.D. Ohio 2015) (concludes §1326(a)(2) governs trustee disbursements on pre-confirmation dismissal and allows payment of §503(b) fees first)
- In re Wheaton, 547 B.R. 490 (1st Cir. B.A.P. 2016) (holds Harris does not apply to pre-confirmation dismissals; trustee retains authority to disburse under §1326(a)(2))
- In re Bateson, 551 B.R. 807 (Bankr. E.D. Mich. 2016) (applies Harris reasoning to post-confirmation dismissal; distinguished by this Court)
- In re Merovich, 547 B.R. 643 (Bankr. M.D. Pa. 2016) (concludes §1326(a)(2) should control disbursement of trustee-held funds on pre-confirmation dismissal)