Upholding Bankruptcy Judge Robert E. Grossman, a district judge in Brooklyn, N.Y., ruled that a chapter 13 trustee is entitled to compensation if the case is dismissed before confirmation.
In most chapter 13 cases, the money held by the trustee is so small that it’s not worth litigating whether the trustee is entitled to payment if the dismissal precedes plan confirmation. Not so in the case that was before Judge Grossman in Central Islip, N.Y.
The debtor filed a chapter 13 plan where she paid the trustee $362,000 in a lump sum. Thirteen months later, the debtor voluntarily dismissed 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. Judge Grossman rebuffed all of the debtor’s arguments, finding no ambiguity in the statutes. In re Soussis, 624 B.R. 559 (Bankr. E.D.N.Y. Nov. 12, 2020). To read ABI’s report, click here.
The debtor appealed. In a tightly worded opinion on January 24, District Judge Joan M. Azrack affirmed Judge Grossman’s holdings.
The principal issue revolved around three statutory provisions.
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).”
Subsection (a)(2) says nothing explicitly about the trustee’s fee if the case is dismissed before confirmation.
Recognizing that not all courts agree, Judge Azrack said that she concurred “with the Bankruptcy Court’s well-reasoned interpretation that Section 586 entitles the Chapter 13 Trustee to ‘collect[] his percentage fee regardless of whether the plan is confirmed’ and that this interpretation of Section 586 is consistent with 11 U.S.C. § 1326.”
Judge Azrack cited a split decision by the Ninth Circuit Bankruptcy Appellate Panel as “further [support for] this interpretation.” McCallister v. Harmon (In re Harmon), 20-1168, 2021 WL 3087744 (B.A.P. 9th Cir. July 20, 2021). To read ABI’s report on Harmon, click here.
Like Judge Grossman, Judge Azrack concluded that the debtor had no claim under the Federal Tort Claims Act, because the debtor failed to exhaust her administrative remedies.
Judge Azrack also said that the FTCA only applies to federal employees, and that the chapter 13 trustee “is not an employee of the government.”
Upholding Bankruptcy Judge Robert E. Grossman, a district judge in Brooklyn, N.Y., ruled that a chapter 13 trustee is entitled to compensation if the case is dismissed before confirmation.
In most chapter 13 cases, the money held by the trustee is so small that it’s not worth litigating whether the trustee is entitled to payment if the dismissal precedes plan confirmation. Not so in the case that was before Judge Grossman in Central Islip, N.Y.
The debtor filed a chapter 13 plan where she paid the trustee $362,000 in a lump sum. Thirteen months later, the debtor voluntarily dismissed 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. Judge Grossman rebuffed all of the debtor’s arguments, finding no ambiguity in the statutes.