Standing Trustee Must Return Fee if Plan Not Confirmed

Posted by NCBRC - December 7, 2021

The standing chapter 13 trustee must return his percentage fee to the debtor when the debtor’s plan is not confirmed. Doll v. Goodman (In re Doll), No. 21-731 (D. Colo. Dec. 6, 2021).

The debtor filed for chapter 13 bankruptcy and made $29,900 in plan payments to the standing trustee prior to confirmation. Of that amount, $19,800 went to his counsel, $7,503.30 was disbursed to the Colorado Department of Revenue on a priority tax claim, and the remaining $2,596.70 was retained by the standing trustee as part of his statutory 10% trustee fee. The plan was not confirmed and the bankruptcy court allowed the trustee to retain his fee over the debtor’s objection. The debtor appealed to the district court.

The trustee fee is authorized by 28 U.S.C. § 586(e) of the Judicial Code which provides: “[The standing trustee] shall collect such percentage fee from all payments received by such individual under plans in cases under chapter 12 or 13 of title 11 for which such individual serves as standing trustee.” The trustee pointed out that the Standing Trustee Handbook addresses the circumstances here, stating that “[i]f the plan is dismissed or converted prior to confirmation, the standing trustee must reverse payment of the percentage fee that had been collected upon receipt if there is controlling law in the district requiring such reversal[.].” The trustee argued that there was no controlling law in the district and, therefore, he was entitled to retain the fee.

In finding in favor of the trustee, the bankruptcy court relied, in part, on In re BDT Farms, Inc., 21 F.3d 1019 (10th Cir. 1994), where the court found that, in a chapter 12 case, the trustee fee should be calculated based on the total pre-distribution amount of plan payments rather than on the amount actually distributed to creditors after the trustee fee was deducted from the total. In so holding, that court found section 586(e) was ambiguous and applied Chevron deference to the policy stated in the Trustee Handbook.

The court here declined to likewise apply Chevron deference to the Trustee Handbook, finding that, because BDT was a chapter 12 case and did not address the issue presented here, it was not controlling. Instead, the court turned to section 1326(a)(2). That section does not provide specific instruction as to retention of the trustee’s fee, providing only:

If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as practical. If a plan is not confirmed, the trustee shall return any such payments not previously paid out and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b).

Based on the language of this provision, the district court concluded that “[i]f the payments must be returned, then in my view it follows that fees collected from such payments must be returned.”

The court found that had Congress intended the standing trustee to retain the fee, it could have made that intention clear as it did in chapter 12 cases where section 1226(a)(1) provides that “If a plan is not confirmed, the trustee shall return any such payments to the debtor, after deducting – (1) any unpaid claim allowed under section 503(b) of this title; and (2) if a standing trustee is serving in the case, the percentage fee fixed for such standing trustee.”

Expressing some concern that a standing trustee may not be compensated for his efforts, the court found the issue to be one for Congress to address.

It reversed and remanded with instructions for the bankruptcy court to order the trustee to return the fee.

Doll Dec 2021

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