Trustee Must Return Funds upon Conversion

Posted by NCBRC - October 30, 2012

The Third Circuit in In re Michael, 2012 U.S. App. LEXIS 22244 (3d Cir. Oct.  26, 2012), ruled for the debtor on the issue of whether the chapter 13 trustee had to turn over to the debtor funds that the trustee was holding when the debtor converted from chapter 13 to chapter 7 after confirmation of the plan. Rejecting the trustee’s position, which was supported by an amicus brief filed by all the chapter 13 trustees in the circuit, the court held that the trustee could not distribute the funds to creditors. The court reasoned that the conversion ended the chapter 13 trustee’s services and vacated the order confirming the plan. It also found that the legislative history of section 348(f) supported the conclusion that Congress did not intend for the debtor to have the disincentive to filing chapter 13 that would be caused by the risk that filing a chapter 13 case could cause the loss of postpetition property if the debtor later had to convert to chapter 7.  NACBA’s brief was written by Irv Ackelsberg, who also was permitted to argue on NACBA’s behalf in the court of appeals.

Michael opinion


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