Split on Chapter 13 Trustee Retention of Fees in Unconfirmed Cases Deepens

Posted by NCBRC - February 14, 2022

Deepening the split among lower courts, in McCallister v. Evans, et al., No. 20-112 (D. Ida. Feb. 8, 2022). Chief Judge Nye of the District of Idaho, held that the chapter 13 trustee is entitled to retain her commission on funds collected from the debtors even though the debtors’ case was dismissed prior to confirmation.  While recognizing the split of authority, the court followed in the footsteps of the Ninth Circuit Bankruptcy Appellate Panel in favoring the language of 28 U.S.C. § 586(e)(2) and dodging the clear textual differences between section 1326(a)(2)—applicable in chapter 13—and section 1226(a)(2)—applicable in chapter 12.

Section 28 U.S.C. § 586(e)(2) directs the trustee to “collect such percentage fee from all payments received by such individual under plans in the cases under subchapter V of chapter 11 or chapter 12 or 13 of title 11 for which such individual serves as standing trustee.” In reviewing the statute, the court first concluded that the verb “collect” implied an irrevocable transfer of fees to the trustee. According to the court, once you collect something it is yours because “collectors are not in the business of returning payments.”  As further support that the trustee was entitled to keep her fees, the court determined that  payments received “under plans” included payments under proposed plans that were not confirmed. All of this seems a bit of a stretch. The court’s reach to interpret the “plain language” of section 586(e)(2) in favor of the trustee, stands in sharp contrast to court’s disregard for the clear difference in the statutory language of sections 1226(a)(2) and 1326(a)(2).

Section 1226(a)(2) explicitly directs that if a plan is not confirmed then the trustee shall return the payments to the debtor after deducting: 1) allowed claims under section 503(b), and 2) the percentage fee fixed for the standing trustee. By comparison, the plain language of section 1326(a)(2) does not include a deduction for the trustee fee. The obvious conclusion to be drawn from the different language in the statutes is that section 1326(a)(2) does not contemplate the deduction of the trustee’s fees when payments are returned to the debtor pursuant to that section.  Any other outcome, makes specific exclusion in section 1226(a)(2) surplusage. The court, however, sidestepped the canon of surplusage, instead reasoning that Congress just chose to be more specific in chapter 12. Under the court’s view, even without the specific exclusion in section 1226(a)(2), the trustee’s fees would be deducted prior to the return of payments in a dismissed chapter 12. The language regarding deducting trustee’s fees was simply redundant (not surplusage?) according to the court, and did not alter its view that the trustee was allowed to keep her fees under section 586(e)(2), notwithstanding the dismissal of debtors’ case prior to confirmation.

Evans D Ida Feb 2022

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