Rice v. Ables (In re Price)Rice v. Ables (In re Price)
ORDER
On October 28, 2010, Randy Rice, Trustee (Plaintiff) for the estate of Rebecca Price filed an adversary proceeding against James Michael Abies and Peggy Lisa Abies (Defendants) seeking a turnover of property and damages. On July 8, 2011, the Plaintiff was awarded judgment in this Court against the Defendants for the sum of $15,746.03.
On April 4, 2012, James M. Abies (Abies) (case no. 4:12-bk-12016) filed a voluntary petition for relief under the provisions of Chapter 13 of the United State Bankruptcy Code. Despite several attempts to obtain confirmation of a plan none were successful and on June 28, 2012, an order was entered dismissing the Chapter 13 case on Abies’ motion. During the time the case was pending, Abies made payments to the Chapter 13 Trustee, Mark McCarty (McCarty) as required by the provisions of Chapter 13 which were not distributed to creditors because no plan was ever confirmed.
On August 21, 2012, Plaintiff requested this Court to issue a writ of garnishment. On August 22, 2012, the writ was issued by the Clerk of the Court against McCarty. The writ of garnishment was served on McCarty who filed an answer on September 6, 2012, acknowledging that he had on hand the sum of $6,847.69. McCarty argued that pursuant to the provisions of 11 U.S.C. § 1326(a)(2) he is required to remit the funds on hand to the Defendants.
A hearing was conducted on October 19, 2012, in Little Rock, Arkansas, and after receiving evidence and argument of counsel the matter was taken under advise
I.
DISCUSSION
11 U.S.C. § 1326(a)(1) & (2) provides in relevant part:
(a)(1) Unless the court orders otherwise, the debtor shall commence making payments not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, in the amount—
(A) proposed by the plan to the trustee;
(2) A payment made under paragraph (1)(A) shall be retained by the trustee until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b).
Courts are divided on the effect of a garnishment issued pursuant to state law and served on the Chapter 13 Trustee after a Chapter 13 case has been dismissed but before the Trustee has returned funds on hand to the debtor pursuant to 11 U.S.C. § 1326(a)(2). Cases are also divided when the garnishment is issued pursuant to some federal statute such as 28 U.S.C. §§ 3001-3008 (the Fair Debt Collection Procedures Act) or a notice of a federal tax levy pursuant to 26 U.S.C. § 6334.
Some courts hold that the language contained in 11 U.S.C. § 1326(a)(2) is an unambiguous mandate requiring the Chapter 13 trustee to return the funds to the debt- or. See In re Sexton,
Other courts take a different view. Relying on the fact that the automatic stay is lifted when a Chapter 13 case is dismissed and the fact that 11 U.S.C. § 1326(a)(c) does not specifically bar the garnishment of sums due to be repaid to the debtor, courts have held that the funds held by the trustee are subject to garnishment before being handed over to the debtor. See In re Pruitt,
The Ninth Circuit held in Beam v. IRS (In re Beam),
The facts in this case are distinguishable from Beam in that the writ of garnishment was issued by the Clerk of this Court as authorized by Federal Rule of Bankruptcy Procedure 7069 which adopts the procedures of the state where the federal court is located. Fed. R. Bankr.P. 7069; see also 10 Collier on Bankruptcy ¶ 7069.02 (Alan N. Resnick & Henry J. Sommer eds. 16th ed. 2011). Garnishment in Arkansas is authorized by Arkansas Code Annotated § 16-110-401, et seq.
II.
THE DECISION
Although cases on either side of the issue offer logical and reasonable interpretations of the effect of 11 U.S.C. § 1326, the more persuasive view is that if a plan has not been confirmed and the case is dismissed, a Chapter 13 Trustee is subject to a properly issued writ of garnishment or levy by a judgment creditor or taxing entity, either state or federal. This is because the automatic stay is terminated on dismissal and property in the hands of the trustee is no longer property of the estate. See 11 U.S.C. § 362(c)(1) & (2)(B);11 U.S.C. § 541; 11 U.S.C. § 349; 11 U.S.C. § 1306; Lugo v. Saez (In re De Jesus Saez),
After a Chapter 13 case has been dismissed without a confirmed plan, a debtor/creditor relationship exists between the trustee and the debtor as commanded by 11 U.S.C. § 1326 as to all sums in the Trustee’s possession not required to satisfy the allowed secured claims. As stated in In re Doherty,
For these reasons, the Chapter 13 Trustee’s objection to the Plaintiffs garnishment is overruled and the Chapter 13 Trustee is Ordered to turn over to the Plaintiff all sums in his possession not needed for payment of the allowed administrative expenses and which are due the Defendants pursuant to 11 U.S.C. § 1326.
IT IS SO ORDERED.