Amicus Curiae Brief — Harris v. Viegelahn, 135 S. Ct. 782 (2014) (No. 14-400)
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No. 14-400
IN THE
Supreme Court of the United States
CHARLES E. HARRIS, III,
Petitioner,
v.
MARY K. VIEGELAHN, CHAPTER 13 TRUSTEE,
Respondent.
On Wait or CERTIORARI TO THE UNITED STATES
Court oF APPEALS FOR THE Firtu Circuit
BRIEF OF AMICI CURIAE AMERICAN
FINANCIAL SERVICES ASSOCIATION AND
CONSUMER MORTGAGE COALITION IN
SUPPORT OF RESPONDENT
TYLER P. BROWN
Counsel of Record
JUSTIN F. PAGET
Hunton & WILLIAMS LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
(804) 788-8200
tpbrown@hunton.com
Counsel for Amici Curiae
me
g
COUNSEL PRESS
(SOU) 274-3921 © (800) 359-6859
Page
pe ge, See i
TABLE OF CITED AUTHORITIES .............. iii
INTEREST OF AMICI CURIAE .................. 1
SUMMARY OF THE ARGUMENT................ 2
Ss 6G sGadaewi curds da ciecorsae cere 4
I. The Structure of Chapter 13 Provides
Debtors with Broad Benefits in
Exchange for Committing a Portion
of Their Post-Petition Earnings to
the Payment of Pre-Petition Claims........... 4
Il. Section 1326 Reflects the Intent of Congress
that the Chapter 13 Trustee Distribute
Undisbursed Funds Held at Conversion as
Directed by the Confirmed Plan.............. 7
A. The “Plain Meaning” of § 1326 Requires
Trustees to Disburse the Funds in
Question According to the Plan........... 8
t
TABLE OF CONTENTS
B. Even if Not Evident from its “Plain
Meaning,” § 1326 Suggests Congress
Intended That Creditors Have a Superior
Interest in Undisbursed Funds Paid to
a Trustee Under a Confirmed Plan ......
it
Table of Contents
III. Bankruptcy Code Provisions Excluding
Certain Property from the Post-
Conversion Chapter 7 Estate Do Not
Answer the Question Presented ............. 13
IV. Undisbursed Plan Payments Committed
to the Supervision and Control of the
Trustee Under a Confirmed Plan Do Not
“Revest” in the Debtor at Conversion ........ 17
A. The Debtor is Not Vested in Payments
Made to the Trustee from Post-Petition
Earnings under a Confirmed Plan ....... 18
B. Plan Payments Made to the Trustee
Are Not Property of the Estate, and
Conversion Does Not “Revest” Plan
Payments in the Debtor................ 19
C. Neither Petitioner’s Plan Nor the
Confirmation Order Dictate
RE ED. che cunnnenaacecewed 22
D. Conversion Does Not Invalidate
Creditors’ Rights to Funds Previously
Submitted to the Trustee Under
V. Section 348(e) Does Not Terminate
a Chapter 13 Trustee’s Obligation to
Distribute Undisbursed Funds.............. 27
EE N65 0405 Cobversasancacevaecines eas 31
202
TABLE OF CITED AUTHORITIES
Page
CASES
Arkison v. Plata (In re Plata),
ee ee EE GE ED oo Ske Siavccvdcucwccscts 11
Behles-Giddens, P.A. v. Raft (In re K.D. Co.),
254 B.R. 480 (B.A.P. 10th Cir. 2000).............. 25
Harris v. Viegelahn (In re Harris),
757 F.3d 468 (6th Cir. 2014) ................ passim
Harris v. Washington Mutual Home Loans, Inc.
(In re Harris),
297 B.R. 61 (Bankr. N.D. Miss. 2003)............. 23
In re Bejarano,
302 B.R. 559 (Bankr. N.D. Ohio 2003) ............ 17
In re Bobroff,
ee as Se Oe Ge BD oo iis ve bescicdcwawecass 15
In re Boggs,
137 B.R. 408 (Bankr. W.D. Wash. 1992)........... 10
In re Castillo,
508 B.R. 1 (Bankr. W.D. Tex. 2014)............... 17
In re Criscuolo
No. 09-14063, 2014 WL 1910078 (Bankr. E.D. Va.
eee err ret: rei 20 29
wv
Cited Authorities
Page
In re Czykoski,
390 B.R. 385 (Bankr. N.D. Ind. 2005). ........---- 28
In re Darden,
474 B.R. 1 (Bankr. D. Mass. 2012). .......+--+++5: 11
In re Doetsch,
No. 04-63998, 2007 WL 2702645
(Bankr. N.D.N-Y. Sept. 12, 2007) .....-------+++> 17
In re Doyle,
11 B.R. 110 (Bankr. E.D. Pa. 1981).........------- 6
In re Forte,
341 B.R. 859 (Bankr. N.D. Ill. 2005). ........------ 6
In re Halpenny,
125 B.R. 814 (Bankr. D. Haw. 1991) ........--+--- 20
In re Heinzle,
511 B.R. 69 (Bankr. W.D. Tex. 2014)..........--> 15
In re Inyamah,
378 B.R. 183 (Bankr. S.D. Ohio 2007). .........+++: 4
In re Jemison,
No. 07-40761, 2007 WL 2669222
(Bankr. N.D. Ala. Sept. 6, 2007) .......----+++-+> 22
In re Lennon,
65 B.R. 130 (Bankr. N.D. Ga. 1986) .....-..--- 18, 20
Vv
Cited Authorities
Page
In re Lybrook,
961 F.2d 136 (7th Cir. 1991) ......... ccc ccees 14, 17
In re Magee,
444 B.R. 254 (Bankr. S.D.N-Y. 2011). .............. 4
In re Markham,
504 B.R. 1 (Bankr. D. Mass. 2013) ............... 25
In re Messer,
No. 96-550617, 2000 WL 33673748
(Bankr. M.D.N.C. Nov. 22, 2000). ................ 17
In re Michael,
699 F.3d 305 (8d Cir. 2012)................. passim
In re Miller,
247 B.R. 795 (Bankr. W.D. Mo. 2000).............. 6
In re Parker,
400 B.R. 55 (Bankr. E.D. Pa. 2009) .............. 29
In re Parrish,
275 B.R. 424 (Bankr. D.D.C. 2002)...... 10, 20, 28, 30
In re Pegues,
266 B.R. 328 (Bankr. D. Md. 2001) ............... 10
In re Redick,
81 B.R. 881 (Bankr. E.D. Mich. 1987)............. 29
v1
Cited Authorities
Page
In re Reeves,
509 B.R. 35 (Bankr. S.D. Tex. 2014) .............. 17
In re Siegfried,
219 B.R. 581 (Bankr. D. Colo. 1998) .............. 17
In re Smith,
511 B.R. 612 (Bankr. W.D. Mo. 2014) .......... 11, 25
In re Stuart,
402 B.R. 111 (Bankr. E.D. Pa. 2009).............. 24
In re Valone,
500 B.R. 645 (Bankr. M.D. Fla. 2013).............. 5
In re Verdunn,
210 B.R. 621 (Bankr. M.D. Fla. 1997)...... 20, 25, 30
In re Waugh,
82 B.R. 394 (Bankr. W.D. Pa. 1988) ............ 7,17
In re Wiczek-Spaulding,
223 B.R. 538 (Bankr. D. Minn. 1998) ............. 17
K Mart Corp. v. Cartier, Inc.,
Ne ee ec ceccesceesse 7,12
Ledford v. Burns (In re Burns),
90 B.R. 301 (Bankr. S.D. Ohio 1988)............. .20
vit
Cited Authorities
Page
McDonald v. Burgie (In re Burgie),
239 B.R. 406 (B.A.P. 9th Cir. 1999)................ 4
McDonald v. Master Fin., Inc. (In re McDonald),
205 F.8d G06 (Od Cir. 2000)... 2. ccc sccccccccccces 4
Mele v. Mele (In re Mele),
501 B.R. 357 (B.A.P. 9th Cir. 2013). ............... 5
Mendoza v. Temple-Inland Mortgage Corp.
(In re Mendoza),
ee EAE, NED oo 6 kkk sbeKkeecekeces 26
Moser v. Mullican (In re Mullican),
417 B.R. 389 (Bankr. E.D. Tex. 2008), aff'd,
417 B.R. 408 (E.D. Tex. 2009) ................... 16
Russello v. United States,
Se, CE sco das Gausneeesdaenebeabueel i)
Sullivan v. Stroop,
GF ED 6 Sis hecusedncdadecuciedensei 12
The Travelers Indemnity Co. of Illinois, Inc. v.
Griner (In re Griner),
240 B.R. 432 (Bankr. S.D. Ala. 1999) ............. 26
United Sav. Ass'n of Texas v. Timbers of Inwood
Forest Assocs., Ltd.,
Se ED s ch. nica caVadedncccdacedneds 11
viit
Cited Authorities
Page
United States v. Am. Trucking Asens.,
IE og cceccecadcsonvnacidndceaser 27
Wells Fargo Bank, N.A. v. Oparaji
(In re Oparaji),
698 F.3d 231 (6th Cir. 2012) ........... cece eeees 30
STATUTES AND OTHER AUTHORITIES
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Cited Authorities
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BE ee Be 0 8a 6 ccccenerncncscvescusnvsesa 5
11 U.S.C. § 1325@)GMB)Gi) .. 1... eee eee eee eee 5
Cited Authorities
Page
BD See WE pb Svevebccnncectcccsesccesesss 16
TD TRE BED snc ecesescessccvctncccencsas 14
BD TER © BI 0 ce vcecescsuccsnsevecceds 15
BE TE. Bs 6 he cdccunscuscccsesenossace passim
OR ER EID ccscecenicascencessass 2, 6, 8, 10
BD EL BD oc vets csccceceusccscunsenc g
OE TRI OND wast cenvoeswecseccicenss passim
BE EE, OI o voce vtncseneccccsccscncsoned 9
SE es IS vc cnceacekusensbacceseses passim
STs EE 6 0.00.0 5 veo ucsv06 cov davcanpecskes 3, 21
ek Sek rrerrrrr rrr rr rrr ri ry 5, 7, 24
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Cited Authorities
Page
Ped. R. Banke. PF. WORSE 2. cc cecvccsvecccces .28
H.R. Rep. No. 835, 103d Cong. 2d Sess. 57 (1994)... .. 16
Local Bankr. R. 3015-1(b) (S.D. Tex.) ..........0005: 15
INTEREST OF AMICT CURIAP
AFSA is the national trade association for the
consumer credit industry, protecting access to credit
and consumer choice. AFSA has a_ broad
membership, ranging from large international
financial services firms to_ single office,
independently owned consumer finance companies.
The association represents financial services
companies that hold leadership positions in their
markets and conform to the highest standards of
customer service and ethical business practices.
AFSA’s members frequently hold secured or
unsecured claims in Chapter 13 bankruptcy cases
that are converted to Chapter 7.
The Consumer Mortgage Coalition is a trade
association of national mortgage lenders, servicers
and service providers. Its members participate in
every stage of the home financing process, from
providing loan information and taking loan
applications to processing and funding loans, to
purchasing loans from brokers and other lenders,
and to pooling loans for sale on the secondary
market as mortgaged backed securities. The
Coalition acts to pursue reform of the mortgage
origination process, to assure that consumers are
properly informed when making credit choices, and
to reduce abusive lending practices. It participates
1 No party or party's counsel authored the proposed
amici curiae brief in any part, nor did any party or party’s
counsel, or any person other than the amuci, its members, or its
counsel, contribute money that was intended to fund preparing
or submitting this brief. Each of the parties have consented to
the filing of this brief.
in almost every aspect of federal legislative activity
and regulatory rulemaking relating to the mortgage
industry.
SUMMARY OF THE ARGUMENT
The post-petition earnings that a debtor pays
to a Chapter 13 trustee, who acts as disbursing
agent pursuant to a plan, are the quid pro quo for a
debtor’s enjoyment of the expanded benefits that
Chapter 13 provides. This premise, which
permeates Chapter 13, and the language Congress
adopted in several sections of the Bankruptcy Code,
demonstrate that earnings submitted to the
supervision and control of the trustee under a
confirmed plan should be paid pursuant to the plan,
even if the case is subsequently converted.
Bankruptcy Code § 1326 offers the most direct
statutory authority for this rule. Section 1326(a)(1)
requires Chapter 13 debtors to begin making plan
payments promptly after the commencement of the
case. Section 1326(a)(2), in turn, requires a Chapter
13 trustee to distribute such payments in accordance
with the confirmed plan as soon as is practicable. As
the majority of the bankruptcy courts addressing the
question presented have concluded, these provisions
govern all payments received by the trustee during
the course of the Chapter 13 case, not merely the
payments due in the period prior to plan
confirmation. Section 1326(c) reinforces this
principle by providing that the trustee shall make
payments to creditors under a confirmed plan unless
the plan or the confirmation order provides
otherwise.
Bankruptcy Code § 348(f) makes clear that
earnings submitted to the supervision and control of
the trustee do not ordinarily become property of the
Chapter 7 estate upon conversion. Section 348(f),
however, does not direct whether the trustee should
distribute these funds in accordance with the plan or
refund the money to the debtor.
Similarly, §§ 1306 and 1327 do not control the
question presented. A contextual reading indicates
that Congress did not intend these sections to cause
undisbursed plan payments to “revest” in the debtor
at conversion. Nothing in the Bankruptcy Code
retroactively invalidates the plan upon conversion to
cause the funds to revert to the debtor either. Thus,
funds already submitted to the supervision and
contro] of the trustee prior to conversion should be
paid according to the plan.
The rule adopted by the Court below, that
plan payments held by the trustee at the time of
conversion should be paid to creditors, does not
discourage Chapter 13 filings. To the contrary, it
follows the debtor’s expectation at the outset of a
Chapter 13 case. A corollary to the debtor’s
commitment of post-petition earnings to the plan is
that the trustee will pay those funds to creditors as
directed by the confirmed plan.
ARGUMENT
I. The Structure of Chapter 13 Provides Debtors
with Broad Benefits in Exchange for Committing a
Portion of Their Post-Petition Earnings to the
Payment of Pre-Petition Claims
Congress has demonstrated a preference for
individual debtors to attempt to repay their creditors
under the terms of a plan governed by Chapter 13 of
the Bankruptcy Code rather than filing under
Chapter 7. See McDonald v. Master Fin., Inc. Un re
McDonald), 205 F.3d 606, 614 (3d Cir. 2000). Part of
the reason is that unsecured creditors often receive
more under a Chapter 13 plan than in a Chapter 7
liquidation. Jd.
Chapter 7 and Chapter 13 have significantly
different structures. In Chapter 7, non-exempt pre-
petition assets are turmed over to a trustee for
liquidation. Jn re Magee, 444 B.R. 254, 262 (Bankr.
S.D.N.Y. 2011). In contrast, Chapter 13 allows
debtors to retain their non-exempt pre-petition
property in exchange for funding the Chapter 13
plan with a portion of their post-petition earnings.
McDonald v. Burgie (In re Burgie), 239 B.R. 406, 410
(B.A.P. 9th Cir. 1999). Thus, a Chapter 13 trustee’s
duties are not identical to the duties of a Chapter 7
trustee. See 11 U.S.C. § 1302; Resp. Br. at 4.
Noticeably absent from a Chapter 13 trustee’s duties
is the responsibility set forth in § 704(a)(1) “to collect
and reduce to money the property of the estate for
which such trustee serves ....” 11 USC. §
1302(b)(1).
Using a Chapter 13 plan may enable a debtor
to save a home from foreclosure, or maintain
possession of a vehicle or other personal property, by
curing a delinquency over time rather than all at
once as state laws often provide. /n re Michael, 699
F.3d 305, 318 n.1 (3d Cir. 2012) (Roth, J.,
dissenting). Moreover, subject to certain exceptions,
Chapter 13 debtors may also “cram down” certain
secured debts and “strip off’ junior liens. See 11
U.S.C. §§ 506(a), 1322(b) and 1325(a)(5)(B)Gi.
Further, the “superdischarge” available in Chapter
13 relieves debtors from liabilities that may not be
discharged in Chapter 7. See Mele v. Mele Un re
Mele), 501 B.R. 357, 368 n.10 (B.A.P. 9th Cir. 2013).
Another benefit enjoyed by Chapter 13 debtors
is the protection of the automatic stay for the entire
payment period of the Chapter 13 plan, usually from
three to five years. Jn re Valone, 500 B.R. 645, 650-
51 (Bankr. M.D. Fla. 2013). That generally prevents
creditors from enforcing their contractual or legal
rights against the debtor or any collateral while the
Chapter 13 case continues. See 11 U.S.C. § 362(a).
As only a debtor can propose a Chapter 13
plan, there is no risk of a creditor filing a competing
plan of full or partial liquidation. 11 U.S.C. § 1321.
Upon confirmation of a Chapter 13 plan, its
provisions “bind the debtor and each creditor,
whether or not the creditor has objected to, has
accepted, or has rejected the plan.” See 11 U.S.C. §
1327(a). Thus, Chapter 13 plans are variously
referred to as a legislative “contract,” the “Chapter
13 Deal,” or the “Chapter 13 bargain.” See Jn re
Forte, 341 B.R. 859, 869 (Bankr. N.D. Il]. 2005).
The guid pro quo for the expanded benefits a
debtor receives in Chapter 13 is the commitment of a
portion of his or her post-petition earnings to
funding the Chapter 13 plan. Michael, 699 F.3d at
319 (Roth, J., dissenting). Congress emphasized a
quid pro quo concept in Chapter 13 by requiring that
debtors commence plan payments shortly after
filing. See 11 U.S.C. §1326(a)(1). Chapter 13 is not
intended to give debtors a “free ride.” Jn re Miller,
247 B.R. 795, 797 (Bankr. W.D. Mo. 2000). Once
confirmed, a Chapter 13 plan typically provides for
the trustee to make deferred cash payments to pre-
petition creditors from the future earnings a debtor
commits to the plan. See 11 U.S.C. §§ 1322(a)(1) &
1326(c).
Congress said nothing about returning to a
debtor funds that a debtor has paid to a Chapter 13
trustee under a confirmed plan. The only time the
Bankruptcy Code mentions returning funds a
Chapter 13 trustee has received from a debtor is
when a plan is not confirmed, see 11 U.S.C. §
1326(a)(2), and that occurs whether the case is then
converted to another Chapter, as in this case, or
dismissed. See id. §§ 1307(a)-(c).
Conversion or dismissal of a Chapter 13 case
after confirmation of a plan relieves a debtor of the
obligation to continue making payments to a trustee.
See In re Doyle, 11 B.R. 110 (Bankr. E.D. Pa. 1981).
Nothing in Chapter 13, however, provides a debtor
with retroactive relief to, in effect, claw back
payments that were made to a trustee while both the
debtor and his creditors were bound by a confirmed
plan. See 11 U.S.C. § 1327(a).
Whether creditors should receive the quid pro
quo contemplated by the structure of Chapter 13
should not depend on whether a trustee has
distributed the payments received from the debtor at
the time of conversion. Such a ruling would subject
creditors to undue risk resulting from “the trustee’s
lack of] speed in distributing the payments” or
simply a debtor’s timing in converting a case relative
to a trustee’s payment cycle. Harris v. Viegelahn (In
re Harris), 757 F.3d 468, 480 n.10 (5th Cir. 2014)
(citing In re Waugh, 82 B.R. 394, 400 (Bankr. W.D.
Pa. 1988)). This Court should not permit
happenstance, or debtor opportunism, to determine
creditors’ rights to payments already submitted to a
trustee and then due and owing to creditors under a
Chapter 13 plan.
Il. Section 1326 Reflects the Intent of Congress
that the Chapter 13 Trustee Distribute Undisbursed
Funds Held at Conversion as Directed by the
Confirmed Plan
“In ascertaining the plain meaning of [a]
statute, the [Clourt must look to the particular
statutory language at issue, as well as the language
and design of the statute as a whole.” K Mart Corp.
v. Cartier, Inc., 486 U.S. 281, 291 (1988). Section
1326, through its express language and its fit within
the design of Chapter 13, demonstrates
congressional intent that Chapter 13 trustees
distribute funds held at conversion according to the
confirmed plan.
A. The “Plain Meaning” of § 1826 Requires
Trustees to Disburse the Funds in Question
According to the Plan
Section 1326(a)(1) requires that Chapter 13
debtors commence making payments in the amounts
proposed by their plans to Chapter 13 trustees
within 30 days after the earlier of filing their plans
or entry of the order for relief. See 11 U.S.C. §§
301(b), 348(a) & 1326(a)(1). That section does not
provide an end date for the payments.
Section 1326(a)(2) then 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
claim allowed under section 503(b).
11 U.S.C. § 1326(a)(2).
When no plan is confirmed,? Congress
provided that the Chapter 13 trustee would return
funds to the debtor that are “not previously paid and
not yet due and owing to creditors.” 11 U.S.C. §
1326(a)(2).2 If a plan is confirmed, § 1326(a)(2)
should be read to require the trustee to disburse
both pre- and post-confirmation payments according
to the plan because, as noted above, § 1326(a)(1)(A)
is not restricted to pre-confirmation payments.
Section 1326(a)(1)(A) simply provides a starting
? When a Chapter 13 debtor cannot confirm a plan, the
Chapter 13 case cannot continue, and the only available
outcomes are conversion or dismissal. See 11 U.S.C. § 1307(5).
Had Congress similarly intended for debtors to receive a return
of funds upon conversion or dismissal after confirming a plan,
Congress could have included a parallel provision in §§ 1326 or
348. See Russello v. United States, 464 U.S. 16, 23 (1983)
(“[W]here Congress includes particular language in one section
of a statute but omits it in another section of the same Act, it is
generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.”).
3 Under the express language of § 1326(a)(2), a debtor
is not entitled to the return of undisbursed moneys then “due
and owing to creditors pursuant to paragraph (3)” as adequate
protection payments. See 11 U.S.C. § 1326(a)(3). In addition,
the trustee is authorized to deduct the amount of any unpaid
administrative claims under § 503(b) before returning the
balance of any payments made under a non-confirmed plan.
See 11 U.S.C. § 1326(a)(2); see also In re Inyamah, 378 B.R.
183, 185 (Bankr. S.D. Ohio 2007). It would be inconsistent to
provide for the return of all undisbursed funds to the debtor
upon subsequent failure of a confirmed plan when Congress
expressed clear intent not to pay all undisbursed funds to the
debtor upon denial of confirmation, if those sums were then due
and owing to creditors for adequate protection or as
administrative claims.
point for payments. Thus, requiring a trustee to
“distribute any [payment made under paragraph
(1)(A)] in accordance with the plan as soon as is
practicable” refers to all payments a Chapter 13
trustee receives, no matter when received. See id.
There are at least three different judicial
interpretations of whether § 1326 answers the
question presented. One line of cases concludes that
§ 1326(a)(2) does not apply to payments received
post-confirmation. See, e.g., In re Boggs, 137 B.R.
408, 410 (Bankr. W.D. Wash. 1992) (concluding that
§ 1326 only answers the “questions of when plan
payments are to begin, the disposition of funds in the
event no plan is confirmed, and who is to handle the
funds”). The shortcoming in these decisions is that
they overlook that § 1326(a)(1) is not limited to pre-
confirmation payments.
A second line of cases, representing the
majority, correctly concludes that § 1326(a)(2)
instructs Chapter 13 trustees how to distribute all
plan payments, regardless of when received. See,
e.g., In re Pegues, 266 B.R. 328 (Bankr. D. Md. 2001)
(collecting cases); see also In re Parrish, 275 B.R.
424, 433 (Bankr. D.D.C. 2002) (holding that §
1326(a(2) mandates that a chapter 13 trustee
distribute post-confirmation funds to creditors even
upon case dismissal).
Other courts in a third line of cases find that §
1326(a)(2) does not directly answer the question, but
read §§ 1326(a)(2) and 1326(c) together to discern a
broader congressional purpose to give creditors a
vested right to plan payments that a Chapter 13
10
trustee received after confirmation. See, e.g., Jn re
Smith, 511 B.R. 612 (Bankr. W.D. Mo. 2014) (“When
[Section 1326(a)(2)] is considered together with the
Section 1326(c) requirement that the trustee shall
make payments to creditors ... one can reasonably
infer that Congress intended that post-confirmation
payments made pursuant to the plan are likewise to
be distributed to creditors provided for by the plan.”).
Section 1326(c) fully supports this conclusion.
Unless a plan or confirmation order makes someone
other than a Chapter 13 trustee the disbursing agent
for plan payments, this provision obligates the
trustee to make payments according to the
confirmed plan. Arkison v. Plata In re Plata), 958
F.2d 918, 923 (9th Cir. 1992) (Brunetti, J.,
dissenting) (interpreting identical provision in
Chapter 12). No provision in the Bankruptcy Code
other than § 1326 addresses the distribution of funds
submitted to the trustee under a confirmed plan.
This means that post-confirmation Congress
intended for the confirmed plan itself to control the
disbursement of funds. See 11 U.S.C. §§ 1326(a)(2),
(c).
The most logical interpretation of § 1326 is
one that is consistent with its language and the
structure of the Bankruptcy Code. See Jn re Darden,
474 B.R. 1, 8 (Bankr. D. Mass. 2012) (quoting United
Sav. Ass'n of Texas v. Timbers of Inwood Forest
Assocs., Ltd., 484 U.S. 365, 371 (1988)) (“Statutory
construction . . . is a holistic endeavor’ where
isolated provisions ought to be interpreted to
produce a ‘substantive effect that is compatible with
11
the rest of the law.”). The interpretation of § 1326
that once a bankruptcy court confirms a Chapter 13
plan, payments made to a Chapter 13 trustee
pursuant to the plan should be distributed according
to the plan, is both consistent with the language
Congress chose for § 1326 and the design of Chapter
13. Thus, the “plain meaning” of § 1326 should be
respected and, because “the statute is clear and
unambiguous, ‘that is the end of the matter.”
Sullivan v. Stroop, 496 U.S. 478, 482 (1990) (quoting
K mart, 486 U.S. at 291-92).
B. Even if Not Evident from its “Plain
Meaning,” § 1326 Suggests Congress Intended That
Creditors Have a Superior Interest in Undisbursed
Funds Paid to a Trustee Under a Confirmed Plan
Even if this Court finds that the plain
meaning of § 1326 does not answer the question, the
Court should find, as did the Court below, that
Petitioner's creditors had a right to receive the
undisbursed funds held by the trustee upon
conversion. The creditors hold the superior right to
the funds based upon the bargain represented by a
confirmed Chapter 13 plan. Harris, 757 F.3d at 480-
81.
This Court need not characterize the interest
of creditors in the funds at issue as a vested right.
The Bankruptcy Code does not expressly use the
term “vest” with respect to the rights of creditors to
receive funds voluntarily paid by a debtor under a
confirmed plan. While property of the estate is to
“vest” in the debtor upon confirmation, unless the
plan provides otherwise, see 11 U.S.C. § 1327(b), the
12
Bankruptcy Code does not characterize the
payments received by the trustee as property of the
estate, as discussed infra pp. 19-21, nor does it state
that any party is vested in the funds under a
trustee’s supervision and control.
The Court below found that creditors’ rights to
funds held by a Chapter 13 trustee derive from §
1327(a): “When confirmed, the plan governs the
relations of the parties and the debtor is bound to
make the specified payments provided in the
confirmed plan.” Harris, 757 F.3d at 478. “Or, in
other words, ‘the attached wages are the guid pro
guo that the debtor has given up during the
pendency of the reorganization in return for being
permitted to stave off foreclosure and cure the
mortgage default, retain the use of his automobile,
and enjoy the automatic stay.” Id. at 480 (quoting
Michael, 699 F.3d at 320 (Roth, J., dissenting)).
Thus, if the creditors were not permitted to receive
the funds paid to the trustee under the plan, they
will have lost their benefit of the bargain
represented by the confirmed plan while the debtor
has enjoyed the benefits perceived to flow from the
plan he proposed.
ll. Bankruptcy Code Provisions Excluding
Certain Property from the Post-Conversion Chapter
7 Estate Do Not Answer the Question Presented
Section 348() of the Bankruptcy Code
provides that property of the converted Chapter 7
estate includes only assets that the debtor held as of
the Chapter 13 petition date and over which the
13
debtor still retains possession or control. See 11
U.S.C. § 348()(1)(A). Petitioner argues that § 348(f)
grants a debtor rights to undisbursed funds held by
the Chapter 13 trustee upon conversion of the case
to Chapter 7. Nothing in § 348(f), however, suggests
that result.
Congress enacted § 348(f) to address an
altogether different issue. As discussed in the Brief
of Respondent, Congress added § 348(f) for the
ostensive purpose of overruling the holding in Jn re
Lybrook, a Seventh Circuit decision that adopted a
rule of “once in, always in” for determining what
property became part of the converted Chapter 7
bankruptcy estate. See Res. Br. at 33-34; see also In
re Lybrook, 951 F.2d 136, 137 (7th Cir. 1991).
Congress adopted an alternate approach by
creating a default rule for converted cases, treating
the Chapter 13 petition as though it was filed under
Chapter 7. Under § 348(f)(1), the converted Chapter
7 estate is limited to pre-petition property that the
debtor still possesses or controls at conversion.
Stated differently, Congress chose not to punish
debtors solely for a failed attempt at Chapter 13 by
creating an enlarged Chapter 7 estate. Yet, in
enacting § 348(f), nothing in the text of § 348(f or its
legislative history suggests that Congress intended
to modify the structure of Chapter 13 by which
debtors commit all their disposable income from
their post-petition earnings as the primary means to
fund a Chapter 13 plan. See 11 U.S.C. § 1325(b)(1)
(To confirm a plan over an objection, the debtor must
14
commit to pay creditors all “projected disposable
income” during the applicable commitment period.).
Petitioner argues that post-petition earnings
held by the Chapter 13 trustee at conversion should
be returned to the debtor. To hold otherwise,
Petitioner asserts, would create a disincentive to file
Chapter 13 contrary to Congressional intent in
enacting § 348(f. Pet. Br. at 11. The irony in
Petitioner’s position, of course, is that Chapter 13
contemplates that post-petition earnings will be the
primary source of payment to creditors in Chapter
13. See 11 U.S.C. § 1325(b)(1)(B). Thus, requiring a
trustee to turn over the funds in question should not
serve as a disincentive for debtors to seek Chapter
13 relief; disbursing the funds to creditors is
precisely what the parties intended at the time the
payments were made. Creditors will receive only the
funds the debtor earmarked for them in the plan and
paid to them through the trustee when those
payments were due.®
4 “Such a result not only would be patently unfair, but
also contradict the reasoning of [Jn re Bobroff, 766 F.2d. 797
(3d Cir. 1985)]. [The debtor] would be in a better position (and
his creditors in a worse position) than he would have been if he
had initially filed for bankruptcy under Chapter 7.” See Jn re
Michael, 699 F.3d 305, 320 (3d Cir. 2012) (Roth, J., dissenting).
5 Many districts, known as “conduit mortgage districts,”
require debtors to make mortgage payments through the
Chapter 13 trustee, rather than directly to the creditor outside
the plan. See, e.g., Local Bankr. R. 3015-1(b) (S.D. Tex.); see
also In re Heinzle, 511 B.R. 69, 73-74 (Bankr. W.D. Tex. 2014).
It would be inconsistent to permit secured creditors paid
directly to retain payments, but require a trustee to return
undisbursed funds paid to the trustee as a conduit.
15
Nor would paying creditors any funds held by
the trustee under the plan prior to conversion
effectively nullify the “bad faith” exception in §
348(f)(2). Under that exception, a bankruptcy court
can order other post-petition earnings or assets, not
simply those earnings the debtor had committed to
and paid under a Chapter 13 plan, to become
property of the Chapter 7 estate.
The “bad faith” exception was not enacted to
address the disposition of post-petition earnings
intended for plan payments. Prior to 1994, the
Bankruptcy Code already contemplated that post-
petition earnings, to the extent not needed for living
expenses, ordinarily would be paid to creditors in the
plan. See 11 U.S.C. §1325(b). In 1994, Congress
added the “bad faith” exception in § 348(f)(2) so that
bankruptcy judges would have the discretion “to
order that a// property held at the time of the
conversion shall constitute property of the estate in a
converted case.” H.R. Rep. No. 835, 103d Cong. 2d
Sess. 57 (1994), reprinted in 1994 U.S.C.C_A.N. at
3366 (emphasis added). Thus, through § 348((2),
Congress empowered bankruptcy judges to address
potential abuses of the “absolute” right to convert a
case to Chapter 7 in the event a debtor were, for
example, to receive a substantial asset post-petition
and yet, in bad faith, elect not to modify the plan to
share that asset with creditors. See, e.g., Moser v.
Mullican (In re Mullican), 417 B.R. 389 (Bankr. E.D.
Tex. 2008), affd, 417 B.R. 408 (E.D. Tex. 2009)
(finding case was converted in bad faith where
debtors were current on their plan payments,
inheritance would have paid creditors in full, debtors
16
instead paid family member debts, spent portion of
inheritance, and made false representations about
use of proceeds).®
IV. Undisbursed Plan Payments Committed to
the Supervision and Control of the Trustee Under a
Confirmed Plan Do Not “Revest” in the Debtor at
Conversion
The Court below correctly concluded that the
funds in question do not “revest” in the debtor at
conversion. Harris, 757 F.3d at 478 n.8. Once the
debtor makes payment to the trustee from his
earnings under the confirmed plan, the debtor is not
entitled to possession nor is the debtor vested with
any interest in those payments. /d. at 477-78. The
Court below also declined to hold that creditors had
a vested interest in undisbursed funds in the hands
of the trustee, as other courts have found. See, e.z.,
In re Waugh, 82 B.R. 394, 400 (Bankr. W.D. Pa.
1988) (holding that creditors have a “non-divestible
® Most reported decisions addressing the bad faith
exception in § 348(f)(2) involve a debtor obtaining a significant
asset during the Chapter 13 case, often through inheritance,
similar to the facts in Lybrook. See, e.g., In re Castillo, 508
B.R. 1 (Bankr. W.D. Tex. 2014) (post-petition inheritance); Jn re
Doetsch, No. 04-63998, 2007 WL 2702645 (Bankr. N.D.N-Y.
Sept. 12, 2007) (same); Jn re Messer, No. 96-550617, 2000 WL
33673748, at *3 (Bankr. M.D.N.C. Nov. 22, 2000) (same); see
also In re Siegfried, 219 B.R. 581 (Bankr. D. Colo. 1998) (right
to overbid at foreclosure); Jn re Bejarano, 302 B.R. 659 (Bankr.
N.D. Ohio 2003) (post-petition tax refund and personal injury
claim); In re Wiczek-Spaulding, 223 B.R. 538 (Bankr. D. Minn.
1998) (separation payment); Jn re Reeves, 509 B.R. 35 (Bankr.
S.D. Tex. 2014) (retroactive benefit payment, monthly income
from new business venture and collection of large receivable).
17
right to plan payments”); Jn re Lennon, 65 B.R. 130,
136, 137 (Bankr. N.D. Ga. 1986) (same).
Nevertheless, the Court below correctly held that a
confirmed plan directs what a trustee must do with
funds paid by the debtor under the plan. Creditors
are entitled to the guid pro quo of the debtor's
enjoyment of the plan and thus, between creditors
and Petitioner, creditors have a superior claim to the
funds. Harris, 757 F.3d at 481.
A. The Debtor is Not Vested in Payments
Made to the Trustee from Post-Petition
Earnings under a Confirmed Plan
This Court, like the Fifth Circuit, should
reject the notion that the debtor was vested with an
interest in the funds at issue. As the Court below
explained, “[t]hese payments are _ specifically
earmarked and set aside for distribution to creditors
provided for by the confirmed plan. To the extent
that the confirmed plan provides for payment from
debtor's future earnings and the debtor actually
makes payment to the trustee pursuant to that plan,
the debtor is not entitled to possession nor is the
debtor vested with title to such payments.” Harris,
757 F.3d at 478 (quoting Lennon, 65 B.R. at 136).
It is axiomatic that, once turned over to the
Chapter 13 trustee under a confirmed plan, moneys
from earnings are under the “supervision and control
of the trustee,” as contemplated by § 1322(a)(1), and
the debtor no longer has possession or control of the
funds.
18
is,
Similarly, a debtor no longer has a vested
interest in the funds. Once a plan is confirmed, the
Chapter 13 trustee is required to pay to creditors
funds under the proposed plan received both pre-
confirmation and post-confirmation. See 11 U.S.C. §
1326(a)(2) (“[T]he trustee shall distribute any such
payment in accordance with the plan as soon as is
practicable.”); see also § 1326(c) (“Except as
otherwise provided in the plan or the order
confirming the plan, the trustee shall make
payments to creditors under the plan.”).
B. Plan Payments Made to the Trustee
Are Not Property of the Estate, and
Conversion Does Not “Revest” Plan Payments
in the Debtor
With no right to possession and no vested
interest immediately following submission of
earnings to the trustee, Petitioner asserts that
conversion “revested” the debtor with such rights by
operation of § 1327(b) and the order confirming
Petitioner's plan. Pet. Br. at 13. That result is
wholly unsupported by the language and purpose of
the vesting provision, § 1327(b).
First, § 1327(b) provides that confirmation is
the event that vests all property of the estate in the
debtor (absent a provision to the contrary in the plan
or the confirmation order).? The statute does not
” Nothing about the vesting provision in Petitioner's
plan alters the vesting analysis with respect to payments made
to the trustee under the plan. See, infra, pp. 22-24.
19
mention conversion and does not itself cause any
vesting to occur upon conversion.
Second, the vesting provision in § 1327(b)
applies only to property of the estate, which does not
include funds previously submitted to the trustee
under the plan.* Section 1306 determines what is
property of the estate in Chapter 13, and includes
“earnings from services performed by the debtor
after commencement of the case but before the case
is closed, dismissed, or converted... .” 11 U.S.C.
§1306(a)(2). A debtor’s post-petition earnings,
however, lose their character as “earnings” when
they are paid to the Chapter 13 trustee pursuant to
a confirmed plan. As the dissent in Michae/
observed, when in the hands of the trustee, “we are
not dealing simply with wages here but with that
portion of the wages that had been attached under
the plan and paid to the trustee for distribution to
the creditors.” Michael, 699 F.3d at 320. Once paid
* A number of courts have directly or indirectly reached
this conclusion by holding that creditors are vested with an
interest in funds submitted to the control and supervision of a
trustee pursuant to a confirmed plan. See Jn re Verdunn, 210
B.R. 621, 626 (Bankr. M.D. Fla. 1997); Jn re Halpenny, 125
B.R. 814, 816 (Bankr. D. Haw. 1991); Ledford v. Burns Un re
Burns), 90 B.R. 301, 304-05 (Bankr. S.D. Ohio 1988); Jn re
Lennon, 65 B.R. 130, 137 (Bankr. N.D. Ga. 1986); see also In re
Parrish, 275 B.R. 424, 432 (Bankr. D.D.C. 2002) ([Tlhe estate
could alternatively be viewed as continuing to have legal title
to the funds, with the creditors vested with ownership of the
equitable interest in the funds as beneficiaries of a trust
created by the terms of the confirmed plan.”).
* The conclusion that payments made to a trustee under
a confirmed plan are not property of the estate is consistent
20
to the trustee, those funds can no longer be
characterized as “earnings” any more than one
would characterize as “earnings” wages previously
spent on milk and bread, or used to pay post-petition
mortgage payments or rent.
Third, if previously submitted funds were to
be viewed as property of the estate, §§ 1306 and
1327 would conflict with the clear direction provided
in § 1326 on how trustees are to disburse funds
submitted to their supervision and _ control.
Specifically, § 1306(b) provides a default rule that
“the debtor shall remain in possession of ail property
of the estate.” Section 1327(b) establishes a default
rule that “the confirmation of a plan vests all of the
property of the estate in the debtor.” Section 1327(c)
further provides that, absent a plan or confirmation
order providing otherwise, “property vesting in the
debtor under subsection (b) of this section is free and
clear of any claim or interest of any creditor provided
for by the plan.” Reading these statutes to treat
plan payments submitted to the trustee as property
of the estate would cause § 1306(b) to grant
possession to the debtor of pre-confirmation
payments under the plan. Similarly, § 1327(b)
would vest in the debtor pre-confirmation plan
with the duties Chapter 13 trustees are and are not given by
statute. As discussed, supra p. 4, nothing in § 1302 suggests
that the Chapter 13 trustee is to collect property of the estate
under a confirmed plan. The trustee collects funds via monthly
payments made by the debtor out of estate property that vested
in the debtor upon confirmation. See 11 U.S.C. § 1322(a)(1).
The funds paid, however, once under the trustee’s supervision
and control, are not property of the estate because they no
longer are post-petition earnings.
21
payments free of any interest of creditors despite
later confirmation of the plan. Those results would
directly conflict with § 1326(a)(2)’s express
instruction to the trustee to pay such funds “in
accordance with the plan as soon as is practicable.”
11 U.S.C. § 1326(a)(2). The proper and more
harmonious reading of those statutes is that
Congress intended to address estate assets, which
will remain in the debtor’s possession and control
during the pendency of the Chapter 13 case, not to
direct the distribution of payments submitted to the
trustee under a proposed or confirmed plan. Section
1326, titled “Payments,” already accomplishes that
task.
C. Neither Petitioners Plan Nor the
Confirmation Order Dictate a Different Result
Some Chapter 13 plans and confirmation
orders, including in Petitioner’s case, delay the
vesting of property of the estate in the debtor. The
“delayed vesting” provision is used in some
jurisdictions to provide a debtor with more
protection from post-petition creditors than
otherwise may be available under the automatic stay
if vesting occurred at confirmation..° See In re
Jemison, No. 07-40761, 2007 WL 2669222, at *3
(Bankr. N.D. Ala. Sept. 6, 2007).
‘© If property of the estate is vested in the debtor and
thus no longer property of the estate, it would not be subject to
the protections of the automatic stay under § 362(a)(3) or (a)(4),
which prohibits acts against property of the estate by holders of
both pre- and post-petition claims.
22
The “delayed vesting” provision in the order
confirming Petitioner’s plan provides, “Such property
as may revest in the Debtor shall so revest only upon
further Order of the Court or upon dismissal,
conversion, or discharge.”!! J.A. 48. The Court
below declined to “define with precision the property
that ‘may revest in the Debtor.” See Harris, 757
F.3d at 478 n.8. According to the Court, such a
ruling was unnecessary because, by requiring
Petitioner “to pay part of his wages to the trustee for
distribution to creditors, the order clearly did not
contemplate that such payments would revest in”
Petitioner.'2 Jd. Stated differently, nothing in the
order or in the vesting provision, § 1327(b), suggests
that Congress intended for earnings to make a
round-trip, that is, to be possessed and vested in the
1! Petitioner's plan is based on the form Chapter 13
plan published by the U.S. Bankruptcy Court for the Western
District of Texas, San Antonio Division. See Chapter 13 Plan
Form —- San _ Antonio Division, available’ at
Attp-/www. txrwb. uscourts.gow/sites/default/files/file/order_ch 13
_pln_san_antonio.pdf (ast visited, Mar. 3, 2015). The “as may
revest” language in the confirmation order is not part of the
form chapter 13 plan. A number of other jurisdictions have
adopted form Chapter 13 plans that do not contain the “as may
revest” language, and explicitly provide, “A// property shall
remain property of the estate and shall vest in the debtor only
upon dismissal, discharge, or conversion.” See, e.g., Harris v.
Washington Mutual Home Loans, Inc. (In re Harris), 297 B.R.
61, 72 (Bankr. N.D. Miss. 2003) (emphasis added).
2 Funds paid to the trustee under the plan post
confirmation are not funds “as may revest” in the debtor; they
are funds that, but for the language of Petitioner's plan, would
have vested in the debtor at confirmation, but were
subsequently paid out of the estate to the trustee under the
plan.
23
debtor at confirmation, but after being voluntarily
paid to the trustee under the plan, to vest in the
debtor again following conversion.
Regardless of when vesting occurs under a
plan or confirmation order, payments that are made
from the debtor’s earnings to the trustee will not
subsequently vest or revest in the debtor. Congress
intended that the confirmed plan, as a “court-
sanctioned contract that binds the chapter 13 debtor
and its creditors,” Jn re Stuart, 402 B.R. 111, 126
(Bankr. E.D. Pa. 2009), govern the rights of creditors
to funds submitted to the supervision and control of
the trustee, regardless of when property of the estate
vests in the debtor. Both the debtor and his
creditors are bound to the terms of a confirmed plan,
11 U.S.C. § 1327(a), and Petitioner’s plan called for
money paid to the trustee from Petitioner's earnings
to be distributed to creditors by the trustee. See JA.
27 (“From the monthly payments described above,
the Chapter 13 trustee shall pay the following
allowed claims in the manner and amounts
specified”).
D. Conversion Does Not Invalidate
Creditors’ Rights to Funds Previously
Submitted to the Trustee Under a Confirmed
Plan
The fact that the proponent of a confirmed
plan may later decide to convert the case to another
chapter does not change the parties’ rights
concerning payments made to the trustee while the
plan was effective. Petitioner’s resort to § 348 to
4
support his “revesting upon conversion” argument is
unavailing. Consistent with congressional purpose
that § 348 not serve as “a source of disruption, but,
instead, preserves the continuity of the bankruptcy
proceedings,” conversion does not invalidate any
action taken by the debtor or creditors in the
superseded case pursuant to a plan. /n re Verdunn,
210 B.R. 621, 625 (Bankr. M.D. Fla. 1997).
Conversion does not vacate the Chapter 13
plan or have retroactive effect. See 11 U.S.C. § 1330
(omitting conversion as a triggering event for
vacating an order of plan confirmation); see a/so In
re Markham, 504 B.R. 1, 7 (Bankr. D. Mass. 2013)
(“Nowhere in § 348 nor in any other provision of the
Bankruptcy Code is there a suggestion that
conversion from chapter 13 to chapter 7 vacates a
confirmed plan”); accord Behles-Giddens, P_A. v. Raft
Un re KD. Co.), 254 B.R. 480, 487 (B.A.P. 10th Cir.
2000) (chapter 11). Otherwise, Chapter 13 would
prove unworkable as secured creditors, for example,
would face the prospect of returning collateral
surrendered under a confirmed plan upon
conversion. See Jn re Smith, 511 B.R. 612, 616-17
(Bankr. W.D. Mo. 2014). Thus, while conversion
relieves a debtor of the obligation to contribute
additional funds to the plan, conversion does not
invalidate a confirmed plan’s direction that funds
submitted to the trustee be paid to creditors.
This result is evident from the Chapter 13
trustee’s role as disbursing agent. Once the debtor
submits payments to the trustee’s supervision and
control, “[t]he trustee is the conduit for the funds to
25
get to the creditors.” Jd. at 317. Unlike the duties of
a Chapter 7 trustee, “[t]he functions of the chapter
13 trustee are basically administrative, e.g, review
plans, advise the court on plans, and act as
disbursing agent.” The Travelers Indemnity Co. of
Illinois, Inc. v. Griner (In re Griner), 240 B.R. 432,
438 (Bankr. S.D. Ala. 1999) (emphasis added).'
Thus, rights to the funds submitted to the trustee,
acting as disbursement agent under a confirmed
plan, already have been determined at conversion,
and nothing in § 348 suggests that Congress
intended to alter those rights ex post facto.
Practicalities also support this result. If
Chapter 13 trustees were required to return
undisbursed plan payments upon _ conversion,
trustees would face unwarranted pressure to
accelerate the distribution of payments. This could
jeopardize equitable distribution of payments to all
') The Bankruptcy Code presumes that the Chapter 13
trustee will act as “disbursing agent” under the plan, but the
debtor may act as disbursing agent under certain
circumstances. See 11 U.S.C. § 1326(c); Mendoza v. Temple-
Inland Mortgage Corp. (In re Mendoza), 111 F.3d 1264, 1269
(5th Cir. 1997). There is no workable distinction between
payment to creditors directly, in cases where the debtor acts as
his own disbursing agent, and submission of earnings to the
supervision and control of the Chapter 13 trustee for the same
purpose. Each instance involves a voluntary payment of the
debtor “in order to fulfill his obligations under the
reorganization plan and in exchange for the benefits he derives
from the plan.” Michael, 699 F.3d at 320. Petitioner does not
argue that payments made directly to creditors are recoverable
upon conversion, for good reason, and the same rule should
apply to earnings submitted to the supervision and control of
the trustee.
26
creditors of the same priority, as well as drive up the
costs of administration. '*
V. Section 348(e) Does Not Terminate a Chapter
13 Trustee’s Obligation to Distribute Undisbursed
Funds
Finally, a Chapter 13 trustee undoubtedly has
duties to perform following conversion. See Fed. R.
Bankr. P. 1019(5). Among other duties, monies held
under the trustee’s supervision and control, whether
submitted under a proposed or a confirmed plan,
must be paid by the trustee to someone.
Read literally, § 348(e) would prohibit Chapter
13 trustees from performing any tasks immediately
upon conversion. The Court below reasonably
observed that § 348(e) “cannot be taken too literally.”
If read literally, upon conversion a Chapter 13
trustee would be equally powerless to disburse funds
to a debtor or creditors. This interpretation is
unacceptable because it would lead to an absurd, or
at least unreasonable, result. See United States v.
Am. Trucking Assns., 310 U.S. 534, 543 (1940).
The more reasonable interpretation of § 348(e)
is that “there cannot be two trustees administering
'* In order to ensure equitable distribution to creditors,
Chapter 13 trustees sometimes accumulate payments, rather
than distribute the funds immediately. Michael, 699 F.3d at
316. This case is one example. Knowing that the mortgagee in
this case might obtain relief from stay to liquidate its collateral
in satisfaction of its claim, the Chapter 13 trustee held
payments rather than face the prospect of seeking to recover
the funds after payment. See Pet. App. 4a.; Resp. Br. at 10.
27
the same estate under the provisions of the new
chapter.” Parrish, 275 B.R. at 430. While there is
evidence of a desire to avoid jurisdictional overlap,
there also is evidence that Congress did not intend
Chapter 13 trustees to have no further role in the
case after conversion. See, eg, 11 USC.
§1326(a)(2) (requiring a Chapter 13 trustee to return
funds to the debtor if the case is converted pre-
confirmation, but subject to deducting adequate
funds to pay allowed administrative expense claims);
see also Fed. R. Bankr. P. 1019(5)(B)(ii)
(requirement to file a final report and account with
the United States Trustee). Indeed, the post-
conversion tasks performed by the Chapter 13
trustee are necessary for the bankruptcy scheme to
work seamlessly. The Court below correctly
concluded that one of the remaining roles upon
conversion is for the Chapter 13 trustee to distribute
remaining funds to the parties with the best claim to
them—creditors in this case.
Urging that the Fifth Circuit's approach in
interpreting § 348(e) yields inconsistency as applied
to different chapters, Petitioner argues that it would
be absurd for a Chapter 7 trustee to distribute funds
to creditors after conversion from Chapter 7. Pet.
Br. at 12. Yet, the unique roles of Chapter 7 and
Chapter 13 trustees explains any perceived
inconsistency. The Chapter 13 trustee’s role of the
“disbursing agent” for monthly plan payments is
entirely unique to Chapter 13.15 There is nothing
16 Chapter 7 trustees also have persisting, albeit
different, roles in cases converted from Chapter 7. See In re
Crykoski, 320 B.R. 385, 390 (Bankr. N.D. Ind. 2005) (holding
28
inconsistent in reading § 348(e) to permit a Chapter
13 trustee to complete a task unique to that chapter.
See In re Redick, 81 B.R. 881, 886 (Bankr. E.D.
Mich. 1987) (at conversion, “the Chapter 13 trustee
is, at the very least, a custodian of funds”).
Petitioner further attempts to draw support
from a perceived inconsistency that would arise
when a Chapter 13 debtor dismisses a case, rather
than converts to Chapter 7. Upon dismissal,
Petitioner argues, § 349 requires the Chapter 13
trustee to disburse any post-petition wages on hand
to the debtor. See 11 U.S.C. §349(b)(3). Petitioner
theorizes that it would be illogical to return funds to
a debtor in the event of dismissal but not upon
conversion.
Petitioner's position that § 349 leads to a
different result is not grounded in any specific
statutory command. Similar to § 348, discussed supra
pp. 24-26, § 349 is silent on whether funds in the
hands of the Chapter 13 trustee should be paid to
creditors upon dismissal. Several courts have
concluded that § 349 does not instruct Chapter 13
trustees to return undisbursed funds to debtors for
many of the same reasons that such an outcome is
inappropriate upon conversion. See, eg, In re
Criscuolo, No. 09-14063, 2014 WL 1910078 at *8
(Bankr. E.D. Va. May 13, 2014) (holding that §
1326(a)(2) grants creditors the right to payment of the
funds notwithstanding § 349(b)(3)); In re Parker, 400
that Chapter 7 trustee retains standing to file motion to
dismiss and assert claims in case converted from Chapter 7).
29
B.R. 55 (Bankr. E.D. Pa. 2009) (same); Jn re Parrish,
275 B.R. 424 (Bankr. D.D.C. 2002) (same).
Even if undisbursed funds should be returned
to the debtor upon dismissal, which Amici dispute,
there are ample reasons to justify a different result
upon conversion. First, § 349(b)(3) “re-vests the
property of the estate in the entity in which such
property was vested immediately before the
commencement of the case under this title.” This
provision has the impact of returning, to the extent
possible, the debtor and creditors to the status quo
ante. See Wells Fargo Bank, N.A. v. Oparaji (In re
Oparaji), 698 F.3d 231, 238 (5th Cir. 2012). Upon
dismissal, creditors’ rights are restored. See id. The
automatic stay is lifted to allow creditors to
undertake collection action against the debtor and
their collateral. Section 348, governing conversion,
has no such language. Rather, Congress intended
conversion to be a continuation of the bankruptcy
case. Verdunn, 210 B.R. at 625. Upon conversion,
although the Chapter 13 plan no longer will govern
the conduct of the parties, the automatic stay
continues and creditors are not restored to their pre
petition positions to the same extent as upon
dismissal.
30
CONCLUSION
For the foregoing reasons, Amici Curlae
respectfully requests that this Court affirm the
decision below.
Respectfully submitted,
TYLER P. BROWN
Counsel of Record
JUSTIN F. PAGET
HUNTON & WILLIAMS LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
(804) 788-8200
tpbrown@hunton.com
jpaget@hunton.com
Counsel for Amici Curiae
March 4, 2015
31
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