Drawing on Harris v. Viegelahn, Bankruptcy Judge LaShonda L. Hunt of Chicago held that a chapter 13 debtor’s attorney cannot be paid allowed compensation from funds in the hands of the chapter 13 trustee after conversion to chapter 7.
“To the extent any claimant seeks payment from the chapter 13 estate post-conversion, Harris deems that disbursement improper,” Judge Hunt said in her October 12 opinion. Judge Hunt has certified her opinion for direct appeal to the Seventh Circuit.
In Harris v. Viegelahn, 575 U.S. 510 (2015), the debtor had confirmed a chapter 13 plan but later defaulted and converted the case to chapter 7. The chapter 13 trustee wanted to pay the remaining funds in her possession to creditors under the plan. In part because the funds were post-petition wages that would not be included in the chapter 7 estate under Section 348(f), the Supreme Court directed the trustee to pay the funds to the debtor, filling in a gap in Section 1326(a)(2).
The facts before Judge Hunt were similar but not identical. The debtor proposed a plan in chapter 13 but converted the case to chapter 7 before confirmation. The debtor’s chapter 13 attorney was entitled to a no-look fee of about $4,500.
On conversion, the chapter 13 trustee was holding some $1,100. Citing the factual differences from Harris, the chapter 13 attorney filed a fee application, asking Judge Hunt to direct payment of fees from the $1,100. Counsel conceded that Harris precluded payment to creditors but argued that Harris did not bar payment of administrative claims like counsel fees.
Lower courts are split on expanding Harris to allow payment to chapter 13 counsel after conversion. Judge Hunt said that “a few” bankruptcy courts would pay counsel, but that “the more persuasive viewpoint followed by the majority of bankruptcy courts” follows Harris and disallows post-conversion payment of compensation from funds held by a chapter 13 trustee.
Judge Hunt cited several broad statements made for the unanimous Court in Harris by Justice Ruth Bader Ginsburg. Of perhaps greatest significance, Justice Ginsburg said that no provision in chapter 13 “holds sway” after conversion to chapter 7. Harris, id. at 1838. Similarly, the services of the chapter 13 trustee and the trustee’s authority terminate on conversion. Id. Harris therefore rejected the idea that Section 1326(a)(2) allows the trustee to continue making payments after conversion.
Given the breadth of the statements by Justice Ginsburg, Judge Hunt said, “Respectfully, this Court cannot reconcile [decisions allowing payment of compensation] with Harris.”
In addition to taking direction from the holdings in Harris, Judge Hunt said that the funds in the hands of the chapter 13 trustee after conversion were no longer estate assets and thus were no longer available to pay claims like those asserted by counsel.
Judge Hunt denied the motion for payment but said she would enter an order granting the allowance sought by the debtor’s chapter 13 counsel, “subject to objection by the chapter 7 trustee.” She directed that the remaining funds held by the chapter 13 trustee be paid to the debtor.
Drawing on Harris v. Viegelahn, Bankruptcy Judge LaShonda L. Hunt of Chicago held that a chapter 13 debtor’s attorney cannot be paid allowed compensation from funds in the hands of the chapter 13 trustee after conversion to chapter 7.
“To the extent any claimant seeks payment from the chapter 13 estate post-conversion, Harris deems that disbursement improper,” Judge Hunt said in her October 12 opinion. Judge Hunt has certified her opinion for direct appeal to the Seventh Circuit.
In Harris v. Viegelahn, 575 U.S. 510 (2015), the debtor had confirmed a chapter 13 plan but later defaulted and converted the case to chapter 7. The chapter 13 trustee wanted to pay the remaining funds in her possession to creditors under the plan. In part because the funds were post-petition wages that would not be included in the chapter 7 estate under Section 348(f), the Supreme Court directed the trustee to pay the funds to the debtor, filling in a gap in Section 1326(a)(2).