Background

• Charles Harris filed a Chapter 13 petition and proposed plan with $530 monthly payments to a Chapter 13 trustee for 60 months, including specific allocations to Chase and Conns; after stay relief and foreclosure, the trustee held undistributed post-petition funds.
• Harris converted the case to Chapter 7 on November 22, 2011, at which time the trustee held $5,519.22, later partially paid to Harris’ counsel and distributed to Conns and six unsecured creditors, with trustee commission.
• The district court ruled that undistributed Chapter 13 funds in the trustee’s possession at conversion must be returned to Harris, and the trustee appealed.
• The core legal issue is whether post-confirmation, undistributed Chapter 13 funds held by the trustee at conversion become part of the Chapter 7 estate or are to be disbursed under the Chapter 13 plan.
• Congress amended 11 U.S.C. § 348(f) to provide that property in a converted case generally remains in the debtor’s possession unless determined otherwise, and the court ultimately held that undistributed funds must be distributed to creditors under the plan.
• The opinion discusses statutory arguments, policy considerations, and the holdings of related cases to determine which party has the superior right to the undistributed funds.

Issues

Key Cases Cited

• In re Stamm, 222 F.3d 216 (5th Cir. 2000) (wages paid to trustee under proposed plan before confirmation do not become part of the Chapter 7 estate)
• In re Michael, 699 F.3d 305 (3d Cir. 2012) (debtor’s post-petition wages not in Chapter 7 estate; dispute over undistributed funds and bad-faith conversion)
• In re Nash, 765 F.2d 1410 (9th Cir. 1985) (undistributed funds held by trustee upon dismissal must be returned to debtor (distinction from conversion))
• In re Bobroff, 766 F.2d 797 (3d Cir. 1985) (establishes framework for property in Chapter 13 at conversion)
• In re Lybrook, 951 F.2d 136 (7th Cir. 1991) (discusses property passing to Chapter 7 estate and incentives to file Chapter 13)