With no authority as yet from the courts of appeals, the lower courts are divided on the right of a standing trustee to retain his or her statutory fees if a chapter 13 case is dismissed before confirmation.
Bankruptcy Judge Mary Ann Whipple of Toledo, Ohio, decided that the “plain language” of Section 1326(a)(2) takes precedence over 28 U.S.C. § 586(e), which “lacks such clarity,” she said.
The case involved joint chapter 13 debtors who paid about a $10,500 to the standing chapter 13 trustee. The plan was never confirmed, and the case was dismissed. The bankruptcy court approved the trustee’s final report and dismissed the case, calling for the trustee to retain about $900 in statutory fees and return the remainder to the debtors.
One of the debtors sought reconsideration, disallowance of the trustee’s statutory fees, and disgorgement of the fee that the trustee had retained.
In her Sept. 29 opinion, Judge Whipple said that the Handbook for Chapter 3 Standing Trustees, published by the Executive Office of the U.S. Trustees, provides no guidance. If a chapter 13 case is dismissed before confirmation, the Handbook says that the standing trustee must reverse the payment of the percentage fee “if there is controlling law in the district requiring such reversal.”
The Handbook is equivocal because, as Judge Whipple said, the two controlling statutes point in different directions.
Section 1326(a)(2) says that if a plan is not confirmed, “the trustee shall return any [payments made by the debtor] not previously paid out and not yet due and owing to creditors . . . to the debtor, after deducting any unpaid claim allowed under Section 503(b).”
Seemingly to the contrary, Section 586(e) provides that the standing trustee “shall collect such percentage fee from all payments received by [the standing trustee] under plans in the cases under” chapters 12 and 13.
Judge Whipple said that none of the courts of appeals had resolved the conflict in the two sections, and the lower courts are in disagreement. She said there is no controlling law in her district.
In deciphering which statute to follow, Judge Whipple said that the “plain language of Section 1326 is clear.” When a chapter 13 case is dismissed before confirmation, she said that use of the word “shall” requires the standing trustee “to return all such payments, including the statutory percentage fee being held by the trustee, after deducting any allowed administrative expense claims.”
By comparison, Judge Whipple said that Section 586(e)(2) “lacks such clarity,” in part because it deals with collection but not ultimate disposition.
Consequently, Judge Whipple granted the motion for reconsideration, modified the dismissal order, and required the trustee to pay the statutory fee to the debtor.