Although Harris v. Viegelahn decreed that undistributed income returns to the debtor when a chapter 13 case is converted to chapter 7 after confirmation, the Supreme Court’s 2015 decision left several questions unanswered when the facts change slightly.

Courts disagree on the outcome when conversion to chapter 7 from chapter 13 occurs before confirmation. In a case decided on April 14, the First Circuit Bankruptcy Appellate Panel confronted a situation where a chapter 13 case was dismissed before confirmation, rather than converted.

The debtor’s lawyer claimed he was entitled to payment of fees from undistributed income in the hands of the chapter 13 trustee. The lawyer won in an opinion written for the panel on April 14 by Bankruptcy Judge Henry J. Boroff.

Judge Boroff noted that dismissal of a chapter 13 case invokes different rules under the statute. On dismissal of a chapter 13 case, the role of a chapter 13 trustee does not terminate as it would on conversion to chapter 7 under Section 348(e).

Because the trustee’s role does not terminate on dismissal, Judge Boroff said that a majority of courts hold that Harris does not apply.

Following dismissal, a chapter 13 trustee has the continuing duty under Section 1326(a)(2) to pay administrative expenses under Section 503(b). So long as the debtor’s attorney’s fees qualify under Section 503(b), Judge Boroff held that the “debtor’s attorney is entitled to payment of attorney’s fees prior to disbursement of the undistributed plan payments to the debtor.”

Courts disagree on whether a chapter 13 debtor is entitled to the return of undistributed post-petition income on conversion to chapter 7 before confirmation. For an ABI analysis of the split in that circumstance, click here.