Consumer Bankruptcy Journal Spring 2015 - Page 20

Supreme Court Round-Up What’s Mine is Mine and What’s Yours is Mine? The final case the Supreme Court will hear this term is Harris v. Viegelahn, 29 a Fifth Circuit case that finds itself squarely at odds with the Third Circuit 30 on the question of who is entitled to the funds held by the Chapter 13 Trustee following a post-confirmation conversion of the case. In Harris, the debtor’s Chapter 13 Plan provided for a certain amount to be paid towards the arrears on his home mortgage loan held by Chase every month, with the remaining amount of the plan payment to be distributed to one other secured creditor as well as general unsecured non-priority creditors. 31 The plan was confirmed in April of 2010; however, due to the debtor’s inability to make the regular monthly mortgage payment, Chase eventually moved for and was granted relief from the automatic stay. 32 The debtor kept making the full plan payments, including the amount earmarked to go towards the arrears on the Chase loan, which amounts where held by the Trustee at the time the case was converted approximately one year later. 33 Following the conversion, the Chapter 13 Trustee disbursed funds to (1) debtor’s Counsel on the basis of a fee application, (2) the other secured creditor, paying the claim in full, (3) the trustee for statutory fees, and (4) unsecured non-priority creditors. 34 The debtor objected to the distribution to the unsecured creditors, and moved to compel the return of the $4,319.22 so distributed, arguing that the Trustee lacked the authority to disburse the funds. 35 Pursuant to 11 U.S.C. § 348(f), property of the Chapter 7 estate following a good faith conversion from Chapter 13 to Chapter 7 is limited to assets the debtor had at the time the original Chapter 13 case was commenced. 36 The funds held and distributed to creditors by the Trustee in Harris consisted of postpetition earnings of the debtor – an 20 CONSUMER BANKRUPTCY JOURNAL asset that Congress purposefully and intentionally excluded from property of the Chapter 7 estate following a good faith conversion from Chapter 13. 37 Ultimately, the question becomes one of who has the greater right to the funds that are in possession of a Chapter 13 trustee at the time of a conversion to Chapter 7: The debtor or the unsecured creditors that never expected to receive those funds in the first place. Oral argument has been set for April 1, 2015. On February 2, 2015, NACBA filed its Brief of Amicus Curiae in support of the petitioners. In conclusion, the Supreme Court’s 2014-15 term has great potential to clear up some questions that divide the circuits and not just in the context of multi-million dollar Chapter 11 cases, as these cases will directly impact our consumer c