493 B.R. 31
Bankr. M.D. Tenn.2013Background
- Issue: disposition of undistributed funds held by Chapter 13 trustee at dismissal after confirmation.
- Section 349(b)(3) governs dismissal: absent cause order, undistributed funds vest in debtor.
- Postpetition earnings are property of the Chapter 13 estate under 1306 and vest at dismissal.
- Trustee held funds due to unresolved claims objections, preventing distribution under the confirmed plan.
- Courts generally hold funds vest in the debtor; dismissal reverts estates to pre-petition rights; Congress expectations favor quick relief and no diversion to creditors absent cause.
- Policy rationale favors returning undistributed funds to the debtor to preserve status quo ante and encourage Chapter 13 participation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Disposition of undistributed funds at dismissal | SOUTHEAST or trustee: funds to creditors per plan | Court should follow plan distributions, with objections resolved | Undistributed funds must be returned to debtors (subject to for-cause order) |
| Effect of §349(b)(3) on vesting of postpetition earnings | Debtor should retain funds post-dismissal | Funds revest in debtor only if §349(b)(3) permits | Postpetition earnings vest in debtor at dismissal unless court orders otherwise |
| Role of §1326 post-confirmation funds | Funds held at dismissal should be distributed under plan | §1326 not applicable to post-confirmation funds at dismissal | §1326(a)(2) applies to pre-confirmation funds; not controlling for post-confirmation dismissal |
| Court’s discretion under §349(b)(3) | Courts should allow distribution to creditors | Discretion should be exercised with notice to all interested parties | Discretion exists; requires notice and opportunity to seek different outcome |
| Notice and process for 'for cause' orders | Anyone may request 'for cause' disposition | Need orderly process | Notice to all interested parties required before ordering otherwise |
Key Cases Cited
- In re Nash, 765 F.2d 1410 (9th Cir. 1985) (distributions and vesting under §1326(a)(2) timed with confirmation)
- In re Slaughter, 141 B.R. 663-64 (Bankr.N.D. Ill. 1992) (§349(b)(3) vesting and undoing bankruptcy broadly discussed)
- In re Williams, 488 B.R. 380 (Bankr.N.D. Ill. 2013) (post-confirmation dismissal and vesting; policy considerations)
- In re Michael, 699 F.3d 305 (3d Cir. 2012) (post-confirmation funds held by trustee must be returned absent bad faith)
- Wells Fargo Bank, N.A. v. Oparaji (In re Oparaji), 698 F.3d 231 (5th Cir. 2012) (dismissal effects and revesting of estate in pre-petition entity)