OPINION AND ORDER
This bankruptcy appeal raises a discrete question of law: What does the Bankruptcy Code require a Chapter 13 trustee to do with undistributed funds received pursuant to a confirmed Chapter 13 plan when the Chapter 13 case is dismissed? The bankruptcy court held that the trustee is obligated to return the funds to the debtor. For the reasons stated below, the court affirms the decision of the bankruptcy court.
BACKGROUND
The facts are uncontested. Ronald Williams and Dana Morgan-Williams filed for relief under Chapter 13 on November 20, 2008. Marilyn Marshall was assigned to the case as the Chapter 13 trustee (“the Trustee”). On February 3, 2009, the bankruptcy court confirmed a plan that required the Williamses to pay the Trustee $4,625 per month for sixty months. The payments were made via payroll deductions.
The Williamses voluntarily dismissed their bankruptcy case on September 26, 2011. In total, they paid $155,879.58 to the Trustee prior to the dismissal. The Trustee distributed $136,770.12 to creditors as required by the plan but approximately $16,868.24 had not yet been distributed at the time of the dismissal.
On November 15, 2011, the Williamses commenced an adversary proceeding against the Trustee seeking return of the funds she held. On February 9, 2012, the Williamses moved for judgment on the pleadings in the adversary proceeding and, on March 13, 2013, the bankruptcy court granted judgment in favor of the
ANALYSIS
The legal question raised by this appeal arises from the interplay between two statutory provisions. On one hand, section 1326 of the Bankruptcy Code, 11 U.S.C. § 101 et seq., requires a Chapter 13 trustee to distribute payments it receives from the debtor to creditors as set forth in the plan. 11 U.S.C. § 1326. The Trustee argues that it is obligated under this section to distribute the funds it held at the time of dismissal as provided in the plan. On the other hand, section 349(b)(3) of the Bankruptcy Code provides that dismissal of the case “revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case[.]” 11 U.S.C. § 349(b)(3). The Williamses argue that the voluntary dismissal of their ease triggered section 349(b)(3) and thus the payments they made to the Trustee that were not distributed should revest to them. This is not a novel issue of law, but precedent is split between the positions taken by the Williamses and the Trustee.
1. Section 1326
Chapter 13 allows an individual debtor with regular income to adopt a repayment plan funded by future income. The debtor must file a proposed repayment plan within fourteen days after the Chapter 13 petition is filed. See Fed. R. Bank. P. 3015. The plan must provide for payments of fixed amounts to the Chapter 13 trustee. See 11 U.S.C. § 1322. Within thirty days after filing under Chapter 13, even if the plan has not yet been confirmed by the bankruptcy court, the debtor must begin making payments to the Chapter 13 trustee as provided for in the proposed plan. See id. § 1326(a)(1)(A).
Section 1326 of the Bankruptcy Code governs the Chapter 13 trustee’s receipt of payments from the debtor and its distributions to creditors. Section 1326(a)(2) provides,
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 [administrative expenses].
Id. § 1326(a)(2).
The Trustee also cites section 1326(c) in support of her argument. It provides, “Except as otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments to creditors under the plan.” 11 U.S.C. § 1326(c). The court agrees with the bankruptcy court and the Ninth Circuit that this section “ ‘was intended to address only the question of who should act as disbursing agent.... [It] does not address whether the Trustee was required to continue making distributions after the [ ] Chapter 13 case was . dismissed.’ ” Williams,
Although courts may quibble over whether dismissal vacates the order confirming the plan, compare Parrish,
II. Section 349
The effect of the dismissal of a Chapter 13 case is set forth in section 349 of the Bankruptcy Code. Section 349 “reinstates avoided transfers or voided liens made under certain provisions of the bankruptcy code [and] vacates certain types of orders made under the code.” Wiese v. Cmty. Bank of Cent. Wis.,
Since the court has determined that section 1326 is inapplicable here, the question is whether the assets held by the Trustee are “property of the estate” that should revest to the debtors under section 349(b)(3). The filing of a Chapter 13 petition creates an estate consisting of all of the debtor’s legal and equitable interests
[N]o provision in the Bankruptcy Code classifies any property, including post-petition wages, as belonging to creditors .... In the context of a Chapter 13 case, § 1327(b) vests all property of the Chapter 13 estate in the debtor on confirmation of the plan. Thus when the debtor transfers funds to the Chapter 13 trustee to fulfill its obligations under a confirmed plan (or, as here, wages are assigned directly to the Chapter 13 trustee under a garnishment order), the funds become part of the estate, and the debtor retains a vested interest in them. Though creditors have a right to those payments based on the confirmed plan, the debtor does not lose his vested interest until the trustee affirmatively transfers the funds to creditors.
In re Michael,
Further, despite the language in section 349(b)(3) that indicates that property should be revested in the entity in which it was vested prior to commencement of the case, it does not matter whether the funds held by the Chapter 13 trustee at the time of dismissal were part of the prepetition estate or became part of the estate postpetition. See Hamilton,
III. Contrary Precedent -
The cases in which the outcome is contrary to this court’s decision generally hold that section 349(b)(3)’s directive to revest property of the estate in the debtor cannot “override the plain language” of section 1326(a)(2). Parrish,
IV. Policy Considerations
The Trustee and courts in other cases have expressed concern that requiring a Chapter 13 trustee to return funds to the debtor upon dismissal of the case will result in unfavorable policy outcomes. First, there is the concern that returning the assets to the debtor upon dismissal would “allow the debtor to take the money that was earmarked for creditors [ ] after tying creditors’ hands by reason of the confirmed plan having been in place.” Parrish,
Second, the Trustee argues (and other courts have observed) that a rule requiring that a trustee return the funds on hand to the debtor upon dismissal may result in creditors’ requesting more frequent (and thus inefficient) distributions. While the court believes that Chapter 13 trustees generally are diligent in making payments to creditors so as not to amass large amounts at any one time, there are necessary exceptions to this rule. In Darden, for example, an unresolved litigation delayed distribution of amounts to unsecured creditors. Darden,
CONCLUSION
For the reasons stated above, the court affirms the ruling of the bankruptcy court.
Notes
. The district court is authorized to review appeals from the bankruptcy court under 28 U.S.C. § 158(a)(1). This case was originally referred to the bankruptcy court under 28 U.S.C. § 157.
. On appeal, a district court reviews a bankruptcy court's legal conclusions de novo. See Adas v. Rutkowski, No. 13 C 2517,
. The full text of paragraph (1)(A) referred to in section 1326(a)(2) is: "(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. ..." 11 U.S.C. § 1326(a)(1)(A).
. The Trustee cites to an article written by a bankruptcy judge in the Northern District of Illinois that comes to the opposite conclusion from this court and the bankruptcy court below — that a Chapter 13 trustee should distribute postconfirmation payments held at the time of dismissal of the case to creditors. See Judge Eugene R. Wedoff, Chapter 13 Attorney Fees After Conversion or Dismissal, The Mar- ■ shall Chronicles, Apr. 2011, at 1-2. Judge Wedoff relies on the premise that "once the debtor transfers property of the estate to the trustee, it is no longer 'property of the estate.' ” Id. at 2. Although it need not address the arguments made in the article, the court accepts the Third Circuit's contrary reasoning with respect to the time at which property leaves the estate.
. The Third Circuit declined to opine, however, on whether such a provision would be sufficient to mandate that assets held by the trustee at the time of dismissal be distributed to creditors rather than revesting in the debt- or.