570 B.R. 74
Bankr. N.D. Ind.2017Background
- Debtors filed a Chapter 13 case on Oct. 28, 2015, made preconfirmation plan payments, and voluntarily dismissed the case on Apr. 12, 2016; no plan was ever confirmed.
- The Chapter 13 trustee held $10,877.67 when this adversary proceeding was filed; she deposited the disputed funds with the court and was dismissed as a party.
- Debtors filed a Chapter 7 petition on Apr. 21, 2017; the Chapter 7 trustee sought turnover of the funds as property of the Chapter 7 estate.
- The Chapter 7 trustee argued § 349(b)(3) revested the funds in debtors upon dismissal, so they became estate property under § 541 and subject to turnover under § 542.
- Debtors’ counsel claimed an administrative priority for his allowed Chapter 13 fees under §§ 503(b) and 330(a), and relied on § 1326(a)(2) which directs the Chapter 13 trustee to return preconfirmation payments only after deducting unpaid administrative claims.
- The Chapter 7 trustee also asserted laches; counsel had timely sought administrative fees within the dismissal order’s 14-day deadline.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether funds held by the Chapter 13 trustee must be paid first to debtor’s counsel as an allowed administrative claim under § 1326(a)(2) when the Chapter 13 case is dismissed preconfirmation | Wehrwein: § 1326(a)(2) requires trustee to pay allowed § 503(b)/§ 330 fees before returning payments to debtor | Roach: § 349(b)(3) revested funds in debtor on dismissal so funds are estate property in Chapter 7 and should be turned over to Chapter 7 trustee | Held for plaintiff: § 1326(a)(2) is the specific rule controlling funds held by Chapter 13 trustee on dismissal; trustee must pay allowed counsel fees first, then return remainder to debtor (and thus to Chapter 7 trustee) |
| Whether the Chapter 7 trustee can receive the full amount as estate property without regard to administrative priority | Roach: funds revested and are property of Chapter 7 estate | Wehrwein: administrative priority survives dismissal under § 1326(a)(2) and §§ 503/330 | Held against trustee: trustee is limited to debtor’s right to receive payments net of allowed administrative claims, so he takes only the net amount available after counsel’s allowed fees |
| Whether laches bars counsel’s claim for administrative fees | Wehrwein: timely filed within the 14-day deadline set by the dismissal order | Roach: argued delay in pressing claim prejudiced trustee | Held for plaintiff: laches inapplicable where claimant met the court-ordered deadline and no prejudice shown |
| Proper disposition of the deposited funds | Wehrwein: seeks payment of allowed fees from the deposited funds | Roach: seeks turnover of all funds to Chapter 7 estate | Held: $4,527.17 paid to counsel; remaining funds paid to Chapter 7 trustee; counsel may recover costs |
Key Cases Cited
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639 (congressional specificity governs statutory construction)
- Matter of Voelker, 42 F.3d 1050 (7th Cir. 1994) (clear statutory language must be enforced)
- Matter of Jones, 768 F.2d 923 (7th Cir. 1985) (bankruptcy estate takes only debtor’s prepetition property interests)
- Matter of Kirk, 537 B.R. 856 (Bankr. N.D. Ohio 2015) (§ 1326(a)(2) controls return of preconfirmation payments on dismissal)
- In re Brandon, 537 B.R. 231 (Bankr. D. Md. 2015) (Chapter 13 trustee must pay allowed debtor’s counsel fees before returning funds)
- Petrella v. Metro-Goldwyn-Mayer, 134 S. Ct. 1962 (U.S. 2014) (laches generally inapplicable where statutory deadline governs)