Wednesday, May 20, 2015

My Chapter 13 Is Dismissed: What Happens To My Money?, you filed a Chapter 13 and started making payments. Your Chapter 13 Plan was finally confirmed, and the Chapter 13 Trustee started distributing moneys received according to your Plan. Then, something happens, your Chapter 13 is dismissed, and the Trustee still has some of your money. What happens to that money?

Well, the various jurisdictions around the country have treated this differently. Some have said the money should be distributed to creditors pursuant to the Chapter 13 Plan. Others have said the debtor(s) should get the remaining funds. The bankruptcy rules and code do not address this issue, and the Local Rules (at least where I practice) are also silent on the issue. 

The Supreme Court recently decided on May 18, 2015 a case on a vary close, or related issue. In the case of Charles E. Harris, III vs. Mary K. Viegelahn, Chapter 13 Trustee (No. 14-400), the case was not dismissed, but the Chapter 13 was converted to a Chapter 7. The Supreme Court held that debtor gets the undistributed money on conversion. The unanimous Supreme Court reversed the Fifth Circuit, holding that, absent bad faith, when the Chapter 13 debtor converts to Chapter 7, any undistributed money held by the Chapter 13 trustee must be returned to the debtor, rather than distributed to creditors. The decision is based on construction of § 348(f) and termination of the Chapter 13 trustee's services upon conversion under § 348(e). 

If you have a questions concerning the money in your Chapter 13 case, you should contact an attorney in your area that practices in the area of Chapter 13 bankruptcies. 

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