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,
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a Fifth Circuit case that finds itself
squarely at odds with the Third Circuit
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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.
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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
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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