Although Harris v. Viegelahn, 135 S. Ct. 1829, 191 L. Ed. 2d 783 (2015), seemingly answered the question, a lawyer for a chapter 13 debtor evidently didn’t get the message and sought payment of fees from money held by the trustee after dismissal of a chapter 13 case.
Bankruptcy Judge Jeffrey P. Norman of Shreveport, La., gave undistributed wages to the debtor and precluded the attorney from collecting directly from the debtor.
After making payments for two years under a confirmed plan, the debtor voluntarily dismissed his chapter 13 case. Two weeks later, his counsel filed a $350 fee application for preparing an amended plan that was never filed. From wages paid to the trustee by the debtor’s employer, the trustee had funds sufficient to pay the requested fees.
In his March 31 opinion, Judge Norman ruled that the fee application was moot because any money held by the trustee would be paid to the debtor, leaving nothing for payment of administrative expenses.
In Harris, the Supreme Court ruled that the debtor was entitled to receive undistributed wages held by the chapter 13 trustee on conversion to chapter 7. The Court held that turning the money over to the debtor was not a windfall.
Before Harris, courts were split on whether counsel could be paid from undistributed wages after a chapter 13 case was dismissed. Finding Harris to be “equally appropriate” when the chapter 13 case was dismissed instead of being converted, Judge Norman followed the majority and gave the money to the debtor.
Judge Norman held that Section 349(b)(3) “is unambiguous.” At dismissal, he said, “all of the debtor’s post-petition earnings revest in the debtor unless the court orders otherwise for cause.” There being no “cause,” the debtor was entitled to recover his undistributed wages.
The debtor’s counsel would not be the only claimant entitled to the money if it didn’t go to the debtor. Figuring out how to distribute a small amount of money among multiple claimants with differing priorities would be difficult and expensive, Judge Norman said. In any event, counsel fees had no special priority to the exclusion of other creditors.
Judge Norman also barred the lawyer from collecting the fees directly from the debtor. He said that “dismissal should not lead to additional obligations for the debtor.”