481 B.R. 285
Bankr. S.D.N.Y.2012Background
- Chapter 13 trustee moves to reopen a dismissed chapter 13 case due to a dispute with a creditor over a garnishment of plan payments refunded to the Debtor under 1326(a)(2).
- Case was dismissed on July 14, 2011 for Debtor's failure to make pre-confirmation plan payments; no plan was confirmed.
- After dismissal, the trustee refunded $9,787 directly to the Debtor under 1326(a)(2).
- Creditor asserted title to the refunded funds via state garnishment; trustee questioned entitlement but refunded to Debtor as required by law.
- Court analyzes whether 1326(a)(2) requires turnaround to the Debtor notwithstanding garnishment and whether the motion to reopen is proper.
- Court denies the motion to reopen; trustee followed the Code's mandate and relief is not warranted under Rule 60(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does 1326(a)(2) require turnover to the Debtor despite garnishment? | Trustee argues funds must be returned to Debtor per statute. | Garnishment claim may attach to funds despite 1326(a)(2). | Yes; funds must be returned to Debtor notwithstanding garnishment. |
| May the trustee reopen a dismissed case under Rule 60(b) rather than 350(b)? | Rule 60(b) provides relief; 350(b) is inapplicable to dismissed cases. | Reopening is not warranted; lack of proper grounds under Rule 60(b). | Motion denied; 60(b)(6) lacks exceptional circumstances; limited relief not shown. |
Key Cases Cited
- In re Beam, 192 F.3d 941 (9th Cir. 1999) (IRS levy vs. 1326(a)(2) turnover balance; Congress intended turnover to debtors)
- Bailey, 330 B.R. 775 (Bankr. D. Or. 2005) (state garnishments must yield to bankruptcy turnover to debtor)
- In re Oliver, 222 B.R. 272 (Bankr.E.D. Va. 1998) (plain language supports turnover to debtor under 1326(a)(2))
- In re Walter, 199 B.R. 390 (Bankr. C.D. Ill. 1996) (turnover requirement under 1326(a)(2) interpreted to favor debtor)
- In re Steenstra, 307 B.R. 732 (1st Cir. BAP 2004) (policy rationales supporting turnover directly to debtor)
- In re Doherty, 229 B.R. 461 (Bankr. E.D. Wash. 1999) (cases recognizing limitations of garnishments against bankruptcy proceeds)