Ch. 13 Trustee Must Return Plan Payments on Dismissal

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By Daniel Gill

Plan payments held by the trustee when a Chapter 13 case was dismissed must be returned to the debtor and aren’t to be paid to creditors, a Wisconsin bankruptcy judge ruled July 17 ( In re Carr , 2017 BL 246434, Bankr. E.D. Wis., No. 13-23818, 7/17/17 ).

The dismissal of the bankruptcy case revested money paid to the trustee in the debtor, Chief Judge Susan V. Kelley of the U.S. Bankruptcy Court for the Eastern District of Wisconsin determined.

Tenita L. Carr in 2013 filed a case under Chapter 13, which allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of her debts over a three- to five-year period.

When her case was dismissed, the trustee was holding roughly $2,000 that Carr had delivered for payment to her creditors. Carr filed a motion to have the money returned to her. The trustee wanted to pay the money to Carr’s creditors.

At least one bankruptcy court supported the trustee’s position, relying on Bankruptcy Code Section 1326(a)(2), the court here found. That section says: “If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable.”

But “the majority of courts conclude that §1326 does not provide instruction as to how funds should be distributed on dismissal after a plan has been confirmed,” the court said.

Instead, they looked to Section 349, under which dismissal “revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title,” the court said.

The court therefore ordered the trustee to return the funds to Carr.

Carr was represented by Andrew M. Golanowski, Chicago. The Chapter 13 trustee, Rebecca, R. Garcia, Oshkosh, Wis., represented herself.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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