On an issue where the courts are split, Chief Bankruptcy Judge Joseph M. Meier of Boise, Idaho, decided that a chapter 13 trustee is entitled to no fee if the case is dismissed before confirmation.
The debtor filed a chapter 13 petition and had paid about $10,000 to the chapter 13 trustee before he took a voluntary dismissal. The trustee repaid some $9,000 to the debtor and filed a final report proposing to retain about $1,000 as the trustee’s fee under 28 U.S.C. § 586(e).
In his 24-page opinion on February 13, Judge Meier sustained the debtor’s objection to the final report and directed the trustee to return the $1,000 fee to the debtor under Section 1326(a)(2).
As Judge Meier said, two statutes “appear in conflict” and “are ambiguous” when “construed together.”
Section 586(e) says that a trustee “shall collect such percentage fee from all payments . . . under [chapter 13] plans . . . .” [Emphasis added.]
Section 1326(a)(1) requires a chapter 13 debtor to commence making payments to the trustee within 30 days of filing. Subsection (a)(2) provides that payments made by the debtor “shall be retained by the trustee until confirmation or denial of confirmation . . . . If a plan is not confirmed, the trustee shall return any such payments not previously paid out . . . , after deducting any unpaid claim allowed under section 503(b).” The subsection says nothing explicitly about the trustee’s fee.
Judge Meier cited cases coming down on both sides of the question: Does a chapter 13 trustee retain statutory fees in a case dismissed before confirmation?
A policy argument would allow a trustee to retain the statutory fee because otherwise, debtors in confirmed cases would be compensating trustees for cases that are never confirmed.
Judge Meier pointed out the stark difference between chapter 12 and chapter 13 cases. For a chapter 12 trustee, Section 1226(a)(2) specifically allows the trustee to retain the statutory fee if a plan is not confirmed.
Pointing out the difference in the provisions for chapters 12 and 13, the Collier treatise says that the trustee’s retention of the fee “is unique to chapter 12. When a chapter 13 plan is denied confirmation, [the chapter 13 trustee] is not authorized to deduct” the statutory fee.
Judge Meier sided with Collier and an opinion from the Tenth Circuit Bankruptcy Appellate Panel that said that allowing a chapter 13 trustee to retain the fee “could be punitive to the debtor” in “cases involving a long delay in confirming the plan.”
Judge Meier said that Section 1326(b) “only allows the trustee to pay creditors after a plan is confirmed. If the trustee cannot pay creditors until a plan is confirmed pursuant to § 1326(a)(2), then § 1326(b) [allowing the trustee to pay the trustee’s fee] is not operative until a plan is in effect.”
Although policy might argue for paying a trustee if a case is dismissed, Judge Meier decided that he “must rely on the text of the statute . . . and not decide the matter based on conflicting policy arguments.”
In ruling that a trustee is not entitled to a fee if the chapter 13 case is dismissed before confirmation, Judge Meier also analyzed legislative history and decisions coming down on both sides. In substance, his opinion parses virtually every argument that could be made for either outcome.
In addition, Judge Meier consulted the chapter 13 trustees’ handbook promulgated by the U.S. Trustee Program. The handbook is noncommittal. It instructs chapter 13 trustees to follow whatever rule the courts have established in the district.
On an issue where the courts are split, Chief Bankruptcy Judge Joseph M. Meier of Boise, Idaho, decided that a chapter 13 trustee is entitled to no fee if the case is dismissed before confirmation.
The debtor filed a chapter 13 petition and had paid about $10,000 to the chapter 13 trustee before he took a voluntary dismissal. The trustee repaid some $9,000 to the debtor and filed a final report proposing to retain about $1,000 as the trustee’s fee under 28 U.S.C. § 586(e).
In his 24-page opinion on February 13, Judge Meier sustained the debtor’s objection to the final report and directed the trustee to return the $1,000 fee to the debtor under Section 1326(a)(2).
As Judge Meier said, two statutes “appear in conflict” and “are ambiguous” when “construed together.”