537 B.R. 856
Bankr. N.D. Ohio2015Background
- Debtors filed Chapter 13 on Oct. 12, 2014; no plan was ever confirmed and the Trustee moved to dismiss for nonpayment; the case was dismissed on June 3, 2015.
- At dismissal the Chapter 13 Trustee held $3,606.84 in post-petition plan payments, including $147.92 earmarked as adequate protection payments for secured creditor Santander.
- Trustee filed a motion asking how to distribute the funds; debtors' counsel Brett Billec filed for payment of post-petition attorney fees ($1,200) from those funds and attached a fee application.
- Trustee took no position but suggested Harris v. Viegelahn might control; counsel argued Harris (conversion context) is inapplicable and that §1326(a)(2) governs dismissal distributions.
- The court held a hearing, permitted briefing, and concluded counsel was entitled to an administrative expense of $1,000 under §503(b)(2); the Trustee must pay that amount first and then return remaining funds to the Debtors under §§1326(a)(2) and 349(b)(3).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Harris v. Viegelahn control distribution of trustee-held post‑petition wages when a Chapter 13 case is dismissed? | Harris is inapplicable because it addresses conversion, not dismissal. | Trustee suggested Harris rationale might apply to dismissal. | Court: Harris does not apply; it is grounded on §348 (conversion), not dismissal. |
| Which statute governs disposition of plan payments on dismissal: §349(b)(3) general revesting or §1326(a)(2) specific distribution rule? | §1326(a)(2) dictates trustee must return payments after paying allowed administrative expenses. | Trustee initially suggested Harris; otherwise no firm alternative statutory priority offered. | Court: §1326(a)(2)’s specific directives control; funds are first used to pay allowed §503(b) expenses, then returned to debtor per §§1326(a)(2) and 349(b)(3). |
| Are debtor’s counsel’s post‑petition fees payable from trustee-held funds as an administrative expense under §503(b)(2)/§330? | Counsel sought $1,200 for post‑petition services, arguing they benefitted and were necessary. | Trustee took no position on amount. | Court: Allowed $1,000 as a §503(b)(2) administrative expense under §330 standards; ordered payment prior to returning remaining funds. |
| Are accrued adequate protection payments owed to Santander payable from the trustee’s funds on dismissal? | (Implicit) Santander’s accrued payments are for its benefit and could be paid. | Trustee held such funds but did not press a statutory exception. | Court: $147.92 held as adequate protection is not a §503(b) administrative expense nor a payment "not previously paid and not yet due and owing" under §1326(a)(3); return to Debtors with the other funds. |
Key Cases Cited
- Harris v. Viegelahn, 135 S. Ct. 1829 (U.S. 2015) (post‑petition wages held by Chapter 13 trustee upon conversion to Chapter 7 are returned to debtor under §348(f), not distributed to creditors)
- Mass. v. Pappalardo (In re Steenstra), 307 B.R. 732 (1st Cir. BAP 2004) (§1326(a)(2) requires trustee to return post‑petition funds on dismissal after payment of allowed administrative expenses)
- In re Inyamah, 378 B.R. 183 (S.D. Ohio 2007) (concluded §1326(a)(2) governs distribution on dismissal)
- In re Doherty, 229 B.R. 461 (Bankr. E.D. Wash. 1999) (discussing trustee’s duty to complete administration and pay allowed §503(b) expenses before returning funds on dismissal)