484 B.R. 870
Bankr. E.D. Ark.2013Background
- Rice, as estate Trustee, obtained a judgment against James M. Abies and Peggy L. Abies for $15,746.03 (2011).
- Abies filed a Chapter 13 petition April 4, 2012, but no confirmed plan; case dismissed June 28, 2012.
- During the Chapter 13 case, Abies paid funds to the Trustee that were not distributed due to lack of plan confirmation.
- Plaintiff sought a writ of garnishment in August 2012; the Trustee held $6,847.69.
- Hearing held October 19, 2012; the case is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
- Court ultimately held that after dismissal, the Trustee may be garnished and must turnover funds not needed for administrative expenses or for creditors under 11 U.S.C. § 1326.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether garnishment can reach funds held by a Chapter 13 Trustee after dismissal but before turnover. | Trustee funds are subject to garnishment post-dismissal; stay terminates and estate no longer controls funds. | Trustee funds should be insulated from garnishment until turnover and distribution are complete. | Yes; Trustee’s funds may be garnished after dismissal. |
| Whether 11 U.S.C. § 1326(a)(2) requires turnover to the debtor or creditors after dismissal. | Garnishment should turn over funds not needed for admin or distributions. | §1326(a)(2) limits turnover to plan administration, not post-dismissal garnishment. | Trustee must turnover sums not needed for admin/allowed claims. |
| What is the persuasive framework for post-dismissal garnishment of a Chapter 13 Trustee? | Favors trustee turnover of funds to creditor per garnishment. | Favors returning funds to debtor absent plan confirmation. | Garnishment is permissible; trustee liable to turnover. |
Key Cases Cited
- In re Sexton, 397 B.R. 375 (Bankr.M.D.Tenn. 2008) (garnishment/priority of state vs. federal statutes; trustee turnover after dismissal)
- In re Doherty, 229 B.R. 461 (Bankr.E.D.Wash. 1999) (automatic stay termination on dismissal; §1326(a)(2) not extending protections thereafter)
- In re Beam, 192 F.3d 941 (9th Cir. 1999) (IRS levies on trustee after dismissal; absence of §1326(a)(2) protection)
- Lugo v. Saez (In re De Jesus Saez), 721 F.2d 848 (1st Cir. 1983) (automatic stay and post-dismissal property status)