491 B.R. 866
Bankr. W.D. Tex.2013Background
- Debtor Harris filed a Chapter 13 petition Feb 24, 2010; plan confirmed Apr 15, 2010 to pay $530/month for 60 months to the Trustee for creditors.
- Mortgage foreclosure stayed later; Debtor moved out but continued plan payments; Trustee held funds designated for the mortgage.
- After Debtor converted to Chapter 7 on Nov 21, 2011, Trustee had undistributed funds ($5,519.22)
- Trustee paid $1,200 to Debtor’s counsel; remaining $4,319.22 were distributed to creditors post-confirmation but pre-conversion.
- Debtor requested refund of those funds in Dec 2011; Trustee refused.
- Bankruptcy Court ordered Return of Funds for $4,319.22 on Feb 29, 2012; Trustee appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trustee may disburse post-confirmation funds after conversion | Viegelahn: funds belong to creditors under plan; must be disbursed | Harris: funds not part of Chapter 7 estate; must be returned | Affirmed: trustee not authorized to disburse post-conversion |
| Do post-confirmation, pre-conversion payments vest in debtor or remain for creditors | Viegelahn: funds vest in creditors under plan | Harris: funds vest in debtor upon conversion | Vested in debtor; funds to be returned on conversion |
| Does §348(e) prohibit post-conversion disbursement of plan payments | Viegelahn: §348(e) does not bar disbursement | Harris: §348(e) bars trustee from disbursing | Prohibited: §348(e) bars post-conversion disbursement by trustee |
| Does §1326(a)(2) vest creditor rights requiring trustee disbursement post-conversion | Viegelahn: §1326(a)(2) compels distribution | Harris: no vesting of creditor rights post-conversion | Does not vest creditor rights to require trustee disbursement |
| Does §1327 allow disbursement to creditors post-conversion | Viegelahn: plan-bound creditors may receive post-confirmation payments | Harris: plan binding cleared upon conversion | Does not permit post-conversion disbursement to creditors |
Key Cases Cited
- In re Michael, 699 F.3d 305 (3d Cir. 2012) (post-confirmation, pre-conversion funds belong to debtor; policy favors Chapter 13)
- In re Stamm, 222 F.3d 216 (5th Cir. 2000) (post-petition funds not part of Chapter 7 estate after pre-confirmation payments)
- In re Boggs, 137 B.R. 408 (W.D. Wash. 1992) (advocates refund of undistributed pre-conversion wages to debtor to encourage Chapter 13)