When the sweeping language of a landmark Supreme Court opinion conflicted with the statute, Chief Bankruptcy Judge Phillip J. Shefferly of Detroit followed the statute.
In Harris v. Viegelahn, 575 U.S. 510, 135 S. Ct. 1829 (2015), the debtor converted a chapter 13 case to chapter 7 after confirming a plan. Using post-petition wages paid to the trustee by the debtor, the chapter 13 trustee paid herself and the debtor’s counsel before paying the remainder to creditors under the confirmed plan. The debtor moved to compel the trustee to refund the money paid to creditors.
Resolving a split of circuits and answering a question where the statute is silent, the Supreme Court held in Viegelahn that undisbursed wages in possession of the chapter 13 trustee go to the debtor on conversion to chapter 7. In broad language that has influenced courts in later cases, the Supreme Court said that “no Chapter 13 provision holds sway” after conversion. Id. at 1838.
In other words, the broad language in Viegelahn could be cited for the proposition that a chapter 13 debtor is entitled to recover everything held by the trustee on conversion to chapter 7. But even with Supreme Court decisions, the facts matter.
In Viegelahn, the debtor had confirmed a chapter 13 plan. In the case before Judge Shefferly, the debtor converted to chapter 7 before confirmation. In Viegelahn, the debtor had not asked for the trustee to refund payments the trustee had made to herself and to the debtor’s counsel. In other words, the Supreme Court had not answered the question before Judge Shefferly, where the debtor’s counsel was asking to be paid from money in the hands of the trustee.
In his May 12 opinion, Judge Shefferly pointed out the factual differences and parsed the three sentences in Section 1326(a)(2). The first sentence commands the trustee to retain payments made by the debtor until confirmation. The second sentence tells the trustee to make payments required by the plan once the plan is confirmed.
Judge Shefferly observed that the Supreme Court “had no occasion” to address the third sentence. It controlled the case at bar, he said.
As Judge Shefferly put it, the third sentence tells the trustee what to do “in plain and unambiguous terms” if a plan is not confirmed: “if a plan is not confirmed . . . the trustee shall return any such payments [made by the debtor before conversion] . . . to the debtor, after deducting any unpaid [administrative] claim allowed under section 503(b).”
Judge Shefferly declined to “read the broad language [in Viegelahn] as overriding the plain and unambiguous statutory command in the third sentence of § 1326(a)(2), which by its terms only applies to a case that is fundamentally different” from Viegelahn, where a plan had been confirmed.
Judge Shefferly directed the chapter 13 trustee to pay allowed compensation to the debtor’s counsel before refunding the remainder to the debtor. He agreed with Chief Bankruptcy Judge Brenda Moody Whinery of Tucson, Ariz., in In re Hayden, 15-12619, 2018 WL 3157020 (Bankr. D. Ariz. June 25, 2018). To read ABI’s report on Hayden, click here.
When the sweeping language of a landmark Supreme Court opinion conflicted with the statute, Chief Bankruptcy Judge Phillip J. Shefferly of Detroit followed the statute.
In Harris v. Viegelahn, 575 U.S. 510, 135 S. Ct. 1829 (2015), the debtor converted a chapter 13 case to chapter 7 after confirming a plan. Using post-petition wages paid to the trustee by the debtor, the chapter 13 trustee paid herself and the debtor’s counsel before paying the remainder to creditors under the confirmed plan. The debtor moved to compel the trustee to refund the money paid to creditors.
Resolving a split of circuits and answering a question where the statute is silent, the Supreme Court held in Viegelahn that undisbursed wages in possession of the chapter 13 trustee go to the debtor on conversion to chapter 7. In broad language that has influenced courts in later cases, the Supreme Court said that “no Chapter 13 provision holds sway” after conversion. Id. at 1838.
In other words, the broad language in Viegelahn could be cited for the proposition that a chapter 13 debtor is entitled to recover everything held by the trustee on conversion to chapter 7. But even with Supreme Court decisions, the facts matter.
In Viegelahn, the debtor had confirmed a chapter 13 plan. In the case before Judge Shefferly, the debtor converted to chapter 7 before confirmation. In Viegelahn, the debtor had not asked for the trustee to refund payments the trustee had made to herself and to the debtor’s counsel. In other words, the Supreme Court had not answered the question before Judge Shefferly, where the debtor’s counsel was asking to be paid from money in the hands of the trustee.
In his May 12 opinion, Judge Shefferly pointed out the factual differences and parsed the three sentences in Section 1326(a)(2). The first sentence commands the trustee to retain payments made by the debtor until confirmation. The second sentence tells the trustee to make payments required by the plan once the plan is confirmed.