In re Beaird
In re Beaird
Opinion of the Court
MEMORANDUM OPINION AND JUDGMENT GRANTING DEBTOR’S MOTION TO COMPEL CHAPTER 13 TRUSTEE TO TURN UNDISTRIBUTED FUNDS OYER TO DEBTOR AFTER PAYING MOORE & ASSOCIATES ANY UNPAID ATTORNEY FEES
The matter before the Court is Debtor’s “Motion to Compel Chapter 13 Trústee to Turnover Undistributed Funds to Debtor and to Pay Moore & Associates [her bankruptcy counsel] any Remaining Attorney’s Fees (Motion).”
BACKGROUND FACTS
The background facts are undisputed. Debtor Jennifer Denise Beaird (Debtor) filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on
Debtor filed a notice of voluntary dismissal on July 21, 2017,
After oral argument, at the request of. the Court, Debtor filed her agreement with Moore & Associates.
DISCUSSION
A. Unless the Court for cause orders otherwise, postpetition earnings of a debtor held by the Chapter 13 trustee when a case is dismissed post-confirmation vest in the debtor under § 349(b)(3).
Debtor moves to compel the Trustee to turn over the undistributed funds to her,
“Chapter 13 allows a debtor to retain his property if he proposes, and gains court confirmation of, a plan to repay his debts over a three- to five-year period.”
A confirmed plan must provide “for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan.”
A Chapter 13 debtor has a right to dismiss a case at any time if the case has not been converted under § 706, 1112, or 1208.
In this case, Debtor exercised her right to dismiss her case after confirmation of her Chapter 13 plan. At that time, Rushmore had not received payments under the plan because its proof of claim had not been allowed until four days before the dismissal. The Trustee was therefore in possession of $13,788.87 collected from Debtor’s postpetition wages for payments to Rushmore.
The Trustee argues that the better-reasoned decisions require the funds he holds to be distributed to creditors, in this case Rushmore. These cases read the revesting language of § 349(b)(3) in conjunction with § 1326(a)(2), which directs the trustee to distribute payments in accordance with the confirmed plan, and conclude that § 1326(a)(2) controls.
However, the majority of courts decline to follow the foregoing analysis, and hold that § 349(b)(3) controls and revests the postpetition wages in the debtor. In 1985, the Ninth Circuit ruled that wage deductions held by the trustee when a Chapter 13 case was dismissed after confirmation vested in the debtor under § 349(b)(3).
Having rejected § 1326 as the controlling statute, the majority of courts look to § 349, which addresses the effect of dismissal. The question becomes whether undistributed postpetition wages held by the trustee at the time of dismissal are “property of the estate” subject to the directive of § 349(b)(3) that dismissal “revests” such property “in the entity in which such property was vested immediately before the commencement of the case.” Section 1306(a) defines property of a Chapter 13 estate to consist of all property specified in § 541, plus all such property, including all earnings from services performed by the debtor, acquired by the debtor after the commencement of the case and' before the case is closed.
The requirement that the property “re-vest” in the entity in which the property was vested immediately before the case was filed is not so easily satisfied. One court found the wages to be within the subsection because “[i]t would be anomalous to give prepetition property of the estate to the debtor under § 349(b)(3) and postpetition property of the estate to creditors.”
[i]f the debtors had never filed Chapter 13, they would be entitled to possession of their wages in full, subject to whatever rights their creditors have to reach part of those wages in satisfaction of their claims under applicable nonbank-ruptcy law and procedure. Thus, giving the withheld wages to the debtors on dismissal more nearly produces the situation that would have existed had the debtors never filed Chapter 13 than any other approach.42
Another court observed, “[tjhere is no exception to the vesting effect in § 349(b)(3) for earnings held by the trustee at dismissal.”
The Supreme Court’s opinion in Harris
When a debtor exercises his statutory right to convert, the case is placed under Chapter 7’s governance, and no Chapter 13 provision holds sway. § 103(i) (“Chapter 13 ... applies only in a case under [that] chapter.”) [The debtor] having converted the case, the Chapter 13 plan was no longer “binding].” § 1327(a). And'[the Chapter 13 trustee], by then the former Chapter 13 Trustee, lacked authority to distribute “payments] in accordance with the plan.” § 1326(a)(2); see § 348(e).50
After this case was dismissed, the former Chapter 13 Trustee lacked authority to distribute the undisbursed funds to Rushmore.
The Court finds the majority position that § 349(b)(3) operates to vest postpetition wages held by the Trustee at the time of post-conñrmation dismissal to be better reasoned than the minority position.
B. Cause exists to distribute a portion of the postpetition wages held by the Chapter 13 Trustee to Debtor’s counsel.
As found above, unless the court, for cause, orders otherwise, § 349(b)(3) re-vested the property held by the Chapter 13 Trustee when this case was dismissed in Debtor. “Cause” is not defined, but the “power to override the normal effects of dismissal is used sparingly.”
Debtor’s Motion requests that before making the distribution to Debtor, the Trustee distribute to Moore & Associates, Debtor’s counsel, any remaining attorney fees owed at the time the case was dismissed. The fee agreement between Debt- or and her counsel states, ““I/We agree that in the event my/our case is dismissed at any time after the Meeting of Creditors, that Moore & Associates, LLC shall have the right to recover all funds in the hands of the Chapter 13 Trustee that would otherwise be refunded, up to the total fees then due for this case.”
C. Cause does not exist to distribute the postpetition wages held by the Chapter 13 Trustee to Debtor’s creditor, Rushmore.
The Trustee submits the Court should vary the normal effect of § 349(b)(3) and order the funds paid to Rushmore. The cause alleged is Debtor’s intent to make her house payments through the plan and the fact that Debtor benefitted from the stay while her case was pending. Rushmore’s delay in filing its proof of claim, which resulted in the Chapter 13 Trustee holding the funds at the time of dismissal, is characterized as being an “unfortunate circumstance.”
CONCLUSION
For the foregoing reasons, the Court grants Debtor’s Motion. The $13,788.87 shall be distributed to Debtor, after deduction of any remaining attorney fees Debtor owed to Moore & Associates at the time the case was dismissed.
The foregoing constitutes Findings of Fact and Conclusions of Law under Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure, which make Rule 52(a) of the Federal Rules of Civil Procedure applicable to this matter.
JUDGMENT.
Judgment is hereby entered granting Debtor’s Motion to Compel Chapter 13 Trustee to Turnover Undistributed Funds to Debtor and to Pay Moore & Associates any Remaining Attorney’s Fees. The judgment based on this ruling will become
IT IS SO ORDERED.
. Doc. 51.
. Docs. 56 & 57.
. Debtor appeared by Nancy L. Skinner of Moore & Associates, LLC, The Chapter 13 Trustee, William H. Griffin, appeared by William H..Griffin. Rushmore Loan Management Services, LLC, appeared by H, Joseph Esry of Kozeny & McCubbin, L.C.
. This Court has jurisdiction pursuant to 28 U.S.C. § 157(a) and § 1334(a) and (b), and the Amended Standing Order of Reference of the United States District Court for the District of Kansas that exercised authority conferred by § 157(a) to refer to the District’s bankruptcy judges all matters under the Bankruptcy Code and all proceedings arising under the Code or arising in or related to a case under the Code, effective June 24, 2013. D, Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016). A motion to turn over property held by the Chapter 13 Trustee is a core proceeding which this Court may hear and determine as provided in 28 U.S.C. § 157(b)(2)(A) and (E). There is no objection to venue or jurisdiction over the parties.
. Doc. 1,
. Doc, 6 at 1.
. Doc. 22.
. Doc. 6 at 2.
. Id. at 5.
. Id. at 10.
. Id.
. Doc.45.
. Doc.47.
. Doc. 56 at 2. After the order of dismissal was entered, the Trustee received $426.23 from Debtor's employer. These funds have been refunded to Debtor. Id. The sum of these two amounts is $14,215.10, the amount which Debtor contends should be distributed to her and not her creditors. Doc. 51 at 1.
. Doc. 56 at 2.
. Id.
. Doc. 58.
. Id. at 2.
. See Dina Lancer, Annotation, What Does Bankruptcy Code Require Chapter 13 Trustee to Do with Undistributed Funds Received Pursuant to Confirmed Chapter 13 Plan When Chapter 13 Case Is Dismissed, 20 A.L.R. Fed.3d Art. 3 (2017).
. 11 U.S.C. § 349(b)(3). All references to Title 11 in the text are to the section number only.
. Harris v. Viegelahn, — U.S. —, 135 S.Ct. 1829, 1835, 191 L.Ed.2d 783 (2015).
. 11 U.S.C. § 1326(a)(2) (emphasis supplied).
. 11 U.S.C. § 1322(a)(1).
. Harris, 135 S.Ct. at 1835.
. 11 U.S.C. § 1327(a).
. 11 U.S.C § 1326(c).
. 11 U.S.C. § 1307(b).
. H.R. Rep. No. 595, 95th Cong., 1st sess. 338 (1977); S. Rep. No. 989, 95th Cong., 2d Sess. 49 (1978).
. E.g., In re Darden, 474 B.R. 1, 8 (Bankr. D. Mass. 2012).
. Id.
. In re Parrish, 275 B.R. 424, 426 (Bankr. D.C. 2002).
. In re Darden, 474 B.R. at 8; In re Parrish, 275 B.R. at 427.
. In re Hufford, 460 B.R. 172, 176 (Bankr. N.D. Ohio 2011).
. Nash v. Kester (In re Nash), 765 F.22d 1410, 1414 (9th Cir. 1985).
. In re Hamilton, 493 B.R. 31, 35 (Bankr. M.D. Tenn. 2013).
. Id. (quoting Williams v. Marshall (In re Williams), 488 B.R. 380, 385 (Bankr. N.D. Ill. 2013)).
. Id. at 36 (quoting In re Williams, 488 B.R. at 385); see also Williams v. Marshall, 526 B.R. 695, 697 (N.D. Ill. 2014) ("The Trustee's interpretation of [§ 1326(a)(2)], however, would effectively read the word ‘such’ out of the second sentence. ... The better reading of the provision limits the directive in the second sentence to payments made by the debtor to
. Williams, 526 B.R. at 698.
. Id.; see also In re Nash, 765 F.2d at 1413 ("We reject the defendants' contention that the [debtors] continued to be bound by the terms of the first confirmed plan after dismissal.”); Cohen v. Tran (In re Tran), 309 B.R. 330, 334 (9th Cir. BAP 2004) ("[Dismissal effectively vacates a chapter 13 plan confirmation order.”); In re Hamilton, 493 B.R. at 41 ("While § 349(b) does not expressly provide that confirmation of the Chapter 13 plan is vacated by dismissal, courts have reasonably concluded that dismissal has that effect”),
. 11 U.S.C. § 1306(a).
. In re Slaughter, 141 B.R. 661, 663 (Bankr. N.D. Ill. 1992).
. Id. at 664.
. In re Hamilton, 493 B.R. at 39.
. Id. at 40.
. Id. (quoting In re Michael, 699 F.3d 305, 313 (3rd Cir. 2012)).
. Harris, 135 S.Ct. at 1820.
. See In re Bateson, 551 B.R. 807, 810, 813 (Bankr. E.D. Mich. 2016) (Harris "determines the outcome in this case;” "the fact that distinguishes [this case]—conversion rather than dismissal—is a distinction without a difference.”)
. Harris, 135 S.Ct. at 1838.
. Id.
. Id.
. The Court notes that the confirmed plan, which is based on the form plan approved for use in this district, is consistent with this conclusion, As stated above, it provides "[a]ll property of the estate will vest in Debtor at discharge or dismissal of the case.”
. H.R. Rep. No. 595, 95th Cong., 1st sess. 338; S. Rep. No. 989, 95th Cong., 2d Sess. 49.
. 3 Collier on Bankruptcy, ¶ 349.03[2] at 349-14 (Alan N. Resnick & Henry J. Sommer, eds.-in-chief, 16th ed. 2017).
. Doc. 58 at 2.
. Doc. 56 at 6.
Reference
- Full Case Name
- IN RE: Jennifer Denise BEAIRD, Debtor
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