In two cases involving the courts’ practice of permitting the chapter 13 trustee to distribute undisbursed funds to creditors upon conversion to chapter 7, the courts found that Harris v. Viegelahn, 575 U.S. ___, 135 S.Ct. 1829 (2015), dictated a different result, even with respect to the debtor’s chapter 13 attorney fees and without regard to whether the case was converted prior to confirmation of the plan. In re Beauregard, No. 11-13069, consolidated with, In re Rule-Osburn, No. 14-13624, In re Montano, No. 14-12950 (Bankr. N. M. July 10, 2015); In re Sowell, No. 14-44130 (Bankr. D. Minn. Aug. 7, 2015). Read More
Tag Archive: conversion
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Harris Precludes Attorney Fee Payments Out of Undisbursed Funds
Posted by NCBRC - August 25th, 2015
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Undisbursed Funds Returned to Debtor Upon Conversion
Posted by NCBRC - May 18th, 2015
In a unanimous decision, the Supreme Court today found that funds paid into a confirmed chapter 13 plan that are undisbursed when the case is converted to chapter 7 should be returned to the debtor. Harris v. Viegelahn, 575 U.S. ___, No. 14-400 (May 18, 2015).
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Supreme Court Doubleheader
Posted by NCBRC - February 3rd, 2015
NACBA filed amicus briefs on Monday in two Supreme Court cases: Harris v. Viegelahn, 14-400, and Bullard v. Blue Hills Bank, 14-116.
Harris asks whether funds paid into a confirmed chapter 13 plan that are still in the trustee’s possession when the bankruptcy is converted to chapter 7 should be refunded to the debtor or paid to creditors. At the time of conversion, the trustee was holding funds originally designated for the debtor’s mortgagee, but more than $4,300 in funds were not disbursed because the mortgagee obtained relief from stay and foreclosed on the debtor’s home. Neither the trustee nor the debtor sought to modify the plan. Instead, the debtor converted the case to Chapter 7. Several days after debtor filed his notice of conversion, the trustee distributed the funds she had on hand to unsecured creditors. Harris moved to compel a refund of the money. The bankruptcy court granted the motion, and the district court affirmed. The Fifth Circuit reversed and found that the monies were properly distributed to creditors. Harris, No. 13-50374 (July 7, 2014) (disagreeing with In re Michael, 699 F.3d 305 (3rd Cir. 2012)).
NACBA’s brief in Harris argues that the Code’s plain text as well as the policies that animate the Code require that undisbursed funds be returned to the debtor.
Bullard asks whether denial of confirmation is a final appealable order. In Bullard, confirmation of the plan depended solely on the resolution of a disputed legal issue that has divided the bankruptcy courts. The bankruptcy court denied confirmation of debtor’s proposed plan, and after granting leave to appeal, the bankruptcy appellate panel affirmed. The First Circuit held that because the debtor could theoretically, though not realistically, submit a new plan, the decision of the bankruptcy appellate panel was not final. By contrast, if the bankruptcy appellate panel had ruled in the debtor’s favor and reversed the bankruptcy court, then its order would indisputably be final, and the First Circuit could conclusively determine the issue and resolve the split among the lower courts.
NACBA’s brief in Bullard argues that giving creditors, but not debtors, the ability to appeal decisions relating to plan confirmation is unjustified, that the alternatives proposed by the court—dismissal or refile and object to debtor’s own plan—are problematic, and that allowing such appeals are unlikely to overburden the courts.
Bullard Amicus Brief of Bank of America
Bullard SCt NACBA amicus brief
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Cert. Granted in Two Bankruptcy Cases
Posted by NCBRC - December 13th, 2014
The Supreme Court has granted certiorari in Bullard v. Hyde Park Savings Bank, No. 14-116, and Viegelahn v. Harris (In re Harris), No. 14-400.
Bullard asks whether denial of confirmation is a final appealable order. The First Circuit Court of Appeals found that it was not. Bullard, No. 13-9009 (May 14, 2014) (disagreeing with Mort Ranta v. Gorman, 721 F.3d 241, 248 (4th Cir. 2013)).
Harris asks whether funds paid into a confirmed chapter 13 plan that are still in the trustee’s possession when the bankruptcy is converted to chapter 7 should be refunded to the debtor or paid to creditors. The Fifth Circuit found that the monies were properly distributed to creditors. Harris, No. 13-50374 (July 7, 2014) (disagreeing with In re Michael, 699 F.3d 305 (3rd Cir. 2012)).
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Post-Petition Equity Goes to Debtor upon Conversion
Posted by NCBRC - October 13th, 2014
Equity created by payments into a chapter 13 plan belongs to the debtor upon conversion to chapter 7. In re Hodges, No. 13-361 (E.D. Tenn. Sept. 29, 2014). Read More
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Circuit Split on Undistributed Funds at Time of Conversion
Posted by NCBRC - July 8th, 2014
Relying on policy and equity considerations, the Fifth Circuit found that funds paid into a plan but not yet distributed at the time of conversion should be distributed to creditors. Viegelahn v. Harris (In re Harris), No. 13-50374 (5th Cir. July 7, 2014) (disagreeing with In re Michael, 699 F.3d 305 (3d Cir. 2012)). Read More
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NACBA Files Amicus in Conversion Case
Posted by NCBRC - August 26th, 2013
The NACBA membership has filed an amicus brief in the case of Viegelahn v. Harris (In re Harris), No. 13-50374 (5th Cir. August 20, 2013) seeking affirmance of the lower courts’ opinions. There, the debtor filed a chapter 13 petition, but after a good faith attempt to fulfill his obligations under the plan, he converted to chapter 7. The trustee sought to distribute debtor’s wages collected pursuant to the plan but not yet distributed at the time of conversion. Read More
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Post-Confirmation Funds Returned to Debtor after Conversion to Chapter 7
Posted by NCBRC - April 15th, 2013
What happens to funds paid into a confirmed chapter 13 plan that are still in the trustee’s possession when the bankruptcy is converted to chapter 7? That is the question recently answered by the district court for the Western District of Texas. The trustee had distributed the funds to creditors post-conversion and upon motion by the debtor, the bankruptcy ordered turnover to the debtor. Relying in large part on the Third Circuit case of In re Michael, 699 F.3d 305 (2012) in which NACBA participated as amicus, the district court affirmed. Veigelahn v. Harris (In re Harris), No. 12-540 (W.D. Tex. March 22, 2013). Read More
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Trustee Must Return Funds upon Conversion
Posted by NCBRC - October 30th, 2012
The Third Circuit in In re Michael, 2012 U.S. App. LEXIS 22244 (3d Cir. Oct. 26, 2012), ruled for the debtor on the issue of whether the chapter 13 trustee had to turn over to the debtor funds that the trustee was holding when the debtor converted from chapter 13 to chapter 7 after confirmation of the plan. Rejecting the trustee’s position, which was supported by an amicus brief filed by all the chapter 13 trustees in the circuit, the court held that the trustee could not distribute the funds to creditors. The court reasoned that the conversion ended the chapter 13 trustee’s services and vacated the order confirming the plan. It also found that the legislative history of section 348(f) supported the conclusion that Congress did not intend for the debtor to have the disincentive to filing chapter 13 that would be caused by the risk that filing a chapter 13 case could cause the loss of postpetition property if the debtor later had to convert to chapter 7. NACBA’s brief was written by Irv Ackelsberg, who also was permitted to argue on NACBA’s behalf in the court of appeals.
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Riverside Bankruptcy Court’s Sua Sponte Dismissal Reversed
Posted by NCBRC - April 16th, 2012
The District Court for the Central District of California reversed the bankruptcy court’s dismissal of the debtors’ chapter 13 case after debtors filed a notification of conversion to chapter 7. Taylor v. Danielson (In re Taylor), No. 11-1879 (C.D. Cal April 13, 2012). The court distinguished Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) where the Supreme Court found that a debtor does not have an absolute right to convert a case from chapter 7 to chapter 13 under section 706(a). In Marrama, the Court reasoned, in part, that conversion from chapter 7 to chapter 13 could result in a debtor either escaping the consequences of bad faith by voluntarily dismissing under chapter 13, or benefiting from the conversion despite bad faith by gaining access to estate assets to the detriment of creditors.
Conversions from chapter 13 to chapter 7 are distinguished by the fact that upon such conversion the trustee has control over estate assets and the court retains jurisdiction over the debtor, so the concerns that were dispositive in Marrama are not present. Additionally, the Bankruptcy Rules treat conversions from chapter 7 to chapter 13 differently than conversion from chapter 13 to chapter 7. Rule 1017(f)(2) contemplates judicial scrutiny over conversions from chapter 7 to chapter 13, while, in contrast, Rule 1017(f)(3) provides that a “chapter 13 case shall be converted without court order when the debtor files a notice of conversion under . . . [§] 1307(a).”
NCBRC’s Tara Twomey assisted in the writing of debtors’ brief.
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