JEFFREY P. NORMAN, UNITED STATES BANKRUPTCY JUDGE.
This matter is before the Court on the Ex Parte Application for Administrative Expenses (ECF No. 40) filed by counsel for the debtor, David K. Welch. The Court held a hearing on this matter on March 22, 2017. After considering the pleadings, evidence, testimony, and arguments, the Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, as incorporated by Federal Rules of Bankruptcy Procedure 7052 and 9014.2. To the extent any finding of fact is construed to be a conclusion of law, it is adopted as such. To the extent that any conclusion of law is construed to be a finding of fact, it is adopted as such. The Court reserves the right to
The debtor, Simmion Bashon Demery, filed this Chapter 13 bankruptcy case on April 3, 2013. His Chapter 13 plan was confirmed on July 19, 2013 (ECF No. 20). The debtor eventually voluntarily dismissed this case on July 15, 2015 (ECF No. 38). On July 28, 2015, which was after dismissal, counsel for the debtor filed a fee application seeking $350.00 for a plan modification which was never approved prior to the dismissal of the case. This Court originally denied the application (ECF No. 41) and a subsequent motion to reconsider (ECF No. 44). The Court denied the motion to reconsider as moot because the Chapter 13 Trustee held no funds to pay the requested compensation. The applicant timely appealed the order denying compensation. On appeal, the United States District Court reversed and remanded the fee application for a determination on the merits.
The debtor's case was filed on April 3, 2013, and was voluntarily dismissed on July 15, 2015. (ECF No. 38). While the case was pending (i.e., from the petition date to dismissal), the debtor paid $13,956.80 to the Chapter 13 Trustee. The payments were made exclusively through a wage order. After subtracting the trustee fees, the Chapter 13 Trustee made the following disbursements: $2,800.00 in attorney fees to debtor's counsel, $325.00 on an additional administrative claim for preparation of tax returns, and $9,822.40 on two secured claims including a vehicle.
At dismissal, the Chapter 13 Trustee still held undistributed funds totaling $1,219.25.
The applicant has offered two options for being paid the requested compensation. One, the application could be approved and $350.00 could be paid by the Chapter 13 Trustee from funds on hand. Two, the applicant argues the debtor could pay the compensation directly if the Trustee is ordered to refund the funds on hand to the
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This particular dispute is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (B) because it affects the administration of this Chapter 13 estate, as well as claims against the estate. Finally, this dispute is core under the general "catch-all" language of 28 U.S.C. § 157(b)(2). See Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 930 (5th Cir. 1999) ("[A] proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.").
The instant application was originally denied based on this Court's plain reading interpretation of 11 U.S.C. § 349. Specifically, this Court believed the debtor's undistributed wages, held by the Chapter 13 Trustee, revested in the debtor when his case was dismissed post-confirmation. This would have required all funds held by the Chapter 13 Trustee to be refunded to the debtor. Therefore, the funds could not be paid to the applicant as compensation. On the day the debtor's case was dismissed, the Chapter 13 Trustee held $1,219.25 which consisted of the debtor's post-petition wages.
11 U.S.C. § 349 provides the following:
Several courts have applied 11 U.S.C. § 349 to post-confirmation dismissal of Chapter 13 cases and undistributed funds. In In re Edwards, 538 B.R. 536 (Bankr. S.D. Ill. 2015), a bankruptcy court addressed the issue concerning what a Chapter
This Court adopts the Edwards holding. This Court properly concluded that the fee application filed after dismissal in this case should be denied given 11 U.S.C. § 349.
The fact that funds were recovered and paid to the Chapter 13 Trustee does not change the Court's analysis. Any funds held by the Chapter 13 Trustee after dismissal should be refunded to the debtor pursuant to 11 U.S.C. § 349. If funds are recovered by the Chapter 13 Trustee post-dismissal in a Chapter 13 case that has previously been confirmed, those funds should always be refunded to the debtor.
The Court notes that the order dismissing the debtor's case contains no provision for the payment of additional attorney fees. Section § 349(b)(3) of the Bankruptcy Code provides "[u]nless the court, for
The "cause" exception in § 349(b)(3) states that, upon dismissal, property of the estate is revested in the entity in which the property was vested pre-petition "[u]nless the court, for cause, orders otherwise." In his brief, the applicant does not cite any cases with regard to this provision. The cases this Court has found dealing with the "for cause" exception generally involve some kind of inequity or bad faith, which does not exist in this case. See, e.g., Viegelahn v. Lopez, 570 B.R. 51,
Even if this Court found cause to not return the funds to the debtor, distribution of the funds held by the Trustee would be a difficult issue. There are unpaid secured and priority claims in this case. The funds held by the Chapter 13 Trustee at dismissal are not necessarily available just to pay a prospective attorney fee award. There are other large unpaid claims in this case. The unpaid balance of claims in this case include two secured debts held by NCEP totaling $12,733.82, and three unpaid priority tax claims totaling $6,704.00. The applicant suggests that notice could be given to all creditors and that creditors could file competing claims against the funds held by the Trustee. This Court rejects that suggestion as economically infeasible. Even assuming that creditors would seek to claim a portion of the $1,219.25, which the Trustee held at the date of the voluntary dismissal, this Court doubts they would do so given the high cost of litigation.
One bankruptcy court stated the following:
This Court declines to accept the applicant's proposal as rational or economical. Also, the Court notes that there is nothing in the Bankruptcy Code requiring attorney fees be paid before other creditors. 11 U.S.C. § 1326(b) provides for payment of § 507(a)(2) priority claims, including the debtor's attorney's fee claims
The Court's holding in this case is consistent with the Supreme Court's holding in Harris v. Viegelahn, ___ U.S. ___, 135 S.Ct. 1829, 191 L.Ed.2d 783 (2015). In Harris, the Supreme Court stated the following:
The Supreme Court's holding, which was not limited to a converted case, appears to apply both in the context of a Harris conversion to Chapter 7, as well as to cases dismissed post-confirmation.
Courts have held that dismissal of a Chapter 13 case vacates the confirmation order. See, e.g., Nash v. Kester (In re Nash), 765 F.2d 1410 (9th Cir. 1985); Elliott v. ITT Corp., 150 B.R. 36, 40 (N.D. Ill. 1992). Attorney fees in this district and division are awarded at plan confirmation, at plan modification, or by a separate fee order. However, all approved fees are provided for and paid as part of the debtor's Chapter 13 plan exclusively by the Chapter 13 Trustee. If dismissal vacates the confirmation order, it likewise vacates a plan modification order and any attorney fees contained therein. This holding is consistent with the revesting requirement contained in 11 U.S.C. § 349(b)(3). Although courts may quibble over whether dismissal vacates an order confirming a Chapter 13 plan, almost all courts would hold that a Chapter 13 plan is no longer enforceable after a case is dismissed. A dismissal undoes the bankruptcy case as far as is practicable, and restores the debtor's property rights to the position that they were in at the time the case was filed. The dismissal of a Chapter 13 case requires disregarding the associated plan. See Nash, 765 F.2d at 1413; In re Sanitate, 415 B.R. 98, 106 (E.D. Pa. 2009). This includes the payment of attorney fee awards.
11 U.S.C. § 349(b)(3) is unambiguous. At dismissal, all of the debtor's post-petition earnings revest in the debtor unless the court orders otherwise for cause. This applies to all undistributed funds the Chapter 13 trustee has on hand. The funds must be returned to the debtor, who is the party in whom they were vested at the commencement of the case. Neither 11 U.S.C. § 1326 nor 11 U.S.C. § 349(b)(3) provides for payment of a claim, including attorney fee claims, when a case is dismissed post-confirmation. Cause to preclude funds revesting in a debtor has been found where the Court concludes that the debtor acted in "bad faith" or where there were "inequitable" circumstances. The applicant's suggestion that the debtor is able, or can be forced, to pay the unpaid fees after the Trustee returns the undistributed funds to the debtor is also inconsistent with the Bankruptcy Code and must be disallowed. The Court notes there has been no showing, or even allegation, of bad faith in this case.
The Supreme Court's rationale in Harris is equally appropriate in this holding. In determining that the debtor may receive a "windfall" in reclaiming accumulated wages, the Supreme Court held "a debtor who converts to Chapter 7 may be entitled to a sizable refund. These outcomes, however, follow directly from Congress' decisions to shield postpetition wages from creditors in a converted Chapter 7 case." Harris v. Viegelahn, 135 S.Ct. at 1839. It seems Congress made the same decision when it provided in 11 U.S.C. § 349(b)(3) that, once a case is dismissed, property of the estate revests in the entity in which such property was vested immediately prior to the commencement of the case. Comparing 11 U.S.C. § 348(f)(1)(A) and 11 U.S.C. § 349(b)(3), it is clear the result should be the same. That is, the Trustee should refund to the debtor any undistributed funds.
This Court will not allow a debtor's attorney fee award in a Chapter 13 case to survive dismissal. Attorneys cannot collect
Therefore, this Court will not allow the applicant to collect funds from the debtor post-dismissal. As of the date of the Court's order mooting the applicant's motion to reconsider, the Trustee had distributed all of the funds it held as of the date of dismissal. If that refund had been made to the debtor, it would have been consistent with this Court's interpretation of 11 U.S.C. § 349. Accordingly, given the lack of funds held by the Trustee, the motion to reconsider was ruled as moot.
The applicant also argues that a holding disallowing the payment of attorney fees such as in this case will have a chilling effect on the bankruptcy bar, of which his law firm is a major participant. This argument is not compelling and, since he served as a fact witness under oath, the Court finds the applicant's testimony inaccurate. This Court is the sole determiner of the truth and veracity of witnesses, and it does not find the applicant's argument or testimony factually sound.
Annual audits of all Chapter 13 trustees are available for public examination at
The Court notes that the vast majority of cases that are dismissed post-confirmation are dismissed for non-payment. In these cases, the Chapter 13 Trustee is not holding funds to distribute to any creditors, including administrative claims such as attorney compensation. In these cases, attorneys are already not being paid on their administrative claims. The applicant
Any funds held by the Chapter 13 Trustee in a post-confirmation dismissal must be returned to the debtor. These funds also cannot be paid to creditors or to attorneys. Further, unpaid attorney fees cannot be collected directly from debtors after the dismissal of a case. Accordingly, the Court finds the Ex Parte Application for Administrative Expenses (ECF No. 40) is moot. A matter is moot if further legal proceedings with regard to it can have no effect. The Court holds the applicant cannot be paid the fee he is requesting.
