Taking sides on an issue where the courts are divided, Bankruptcy Judge Robert E. Grossman of Central Islip, N.Y., decided that a chapter 13 trustee is entitled to retain his or her statutory fee even if the case is dismissed before plan confirmation.
The debtor appealed the same day the decision came down.
Judge Grossman found the result in the plain language of the statute but carefully parsed decisions coming out the other way, including a contrary opinion in February by Chief Bankruptcy Judge Joseph M. Meier of Boise, Idaho. In re Evans, 19-40193, 2020 BL 53269, 2020 WL 739258 (Bankr. D. Idaho Feb. 13, 2020). To read ABI’s report on Evans, click here.
The debtor in Judge Grossman’s case filed a chapter 13 plan where he paid the trustee $362,000 in a lump sum. Soon after, the debtor decided to dismiss the case. After dismissal, the trustee returned about $341,500 to the debtor but retained some $20,500 as his fee.
The debtor filed a motion asking the court to require the trustee to disgorge the fee. Technically speaking, the debtor was not objecting to the trustee’s final report. The debtor lost on every argument he raised.
Two statutes informed Judge Grossman on the outcome.
28 U.S.C. § 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 . . . to creditors . . . , after deducting any unpaid claim allowed under section 503(b).” The subsection says nothing explicitly about the trustee’s fee.
As Judge Meier said in the Evans case, the two statutes “appear to conflict” and “are ambiguous” when “construed together.” Unlike chapter 13, where the statute does not address the issue directly, Judge Meier also pointed out how Section 1226(a)(2) specifically allows the trustee to retain the statutory fee if a plan is not confirmed.
Before addressing the two statutes, Judge Grossman first examined his power to provide a remedy. He ruled in his November 12 opinion that he lacked the equitable power to require disgorgement of part or all of the fee. Because the fee is fixed by statute, he said that “the Court has no authority to fix the dollar amount of the fee the Trustee receives in each Chapter 13 case.”
Next, Judge Grossman said that the proper procedure called for objecting to the trustee’s final report, as opposed to moving for disgorgement. He then examined the two statutes as though the debtor had objected to the final report.
Finding no ambiguity, Judge Grossman said that the “plain meaning” of Section 586(e) “reveals that the Trustee collects his percentage fee regardless of whether the plan is confirmed.” He emphasized the statutory language which provides that the trustee “shall collect [his fee] from all payments received by [the trustee] under the plan. . . .”
Judge Grossman went on to say that the word “plan” is not limited to confirmed plans. He found no ambiguity in the word even taking Section 1326(a)(1) into consideration. He said that Section 1326(a)(1) requires returning payments to the debtor that are “not yet due and owing to creditors.”
Judge Grossman interpreted the sections to mean that “the Debtor is only entitled to a return of the funds earmarked for creditors.”
The policy underlying the system of standing chapter 13 trustees also influenced the decision by Judge Grossman. Congress designed the system to be self-funding.
“To permit debtors to evade payment of these fees solely on the basis of the success of their plans,” Judge Grossman said, “would result in an outcome inconsistent with Congressional intent and would ultimately hinder the abilities of the Trustee Program to fund itself.”
Judge Grossman held that “the Trustee’s fee is a user fee, directed by statute, that must be universally paid by all chapter 13 debtors regardless of the outcome of each case.”
Taking sides on an issue where the courts are divided, Bankruptcy Judge Robert E. Grossman of Central Islip, N.Y., decided that a chapter 13 trustee is entitled to retain his or her statutory fee even if the case is dismissed before plan confirmation.
The debtor appealed the same day the decision came down.
Judge Grossman found the result in the plain language of the statute but carefully parsed decisions coming out the other way, including a contrary opinion in February by Chief Bankruptcy Judge Joseph M. Meier of Boise, Idaho. In re Evans, 19-40193, 2020 BL 53269, 2020 WL 739258 (Bankr. D. Idaho Feb. 13, 2020). To read ABI’s report on Evans, click here.
The debtor in Judge Grossman’s case filed a chapter 13 plan where he paid the trustee $362,000 in a lump sum. Soon after, the debtor decided to dismiss the case. After dismissal, the trustee returned about $341,500 to the debtor but retained some $20,500 as his fee.
The debtor filed a motion asking the court to require the trustee to disgorge the fee. Technically speaking, the debtor was not objecting to the trustee’s final report. The debtor lost on every argument he raised.
Two statutes informed Judge Grossman on the outcome.