Trustee in Dismissed Case May Keep Pre-Confirmation Fees

Posted by NCBRC - March 8, 2022

In a cursory opinion, the District Court for the Eastern District of New York, found the chapter 13 trustee was entitled to retain his statutory fees despite the fact that the debtor’s bankruptcy was dismissed prior to confirmation. Soussis v. Macco (In re Soussis), No. 20-5673 (E.D.N.Y. Jan. 24, 2022) (online publication only).

After the debtor voluntarily dismissed her chapter 13 case prior to plan confirmation, she filed a motion with the bankruptcy court seeking disgorgement of the trustee’s fees in the amount of $20,592. She also sought an award of attorney fees under the Federal Tort Claims Act (FTCA). The bankruptcy court denied the motion, and the debtor appealed to the district court.

The district court referred to the reasoning set forth in the bankruptcy opinion that 28 U.S.C. section 586 mandates that a trustee receive his fees even if no plan is confirmed, and that section 1326 of the Bankruptcy Code does not conflict with that finding. The court acknowledged that there is a split among courts concerning the issue, but it agreed with the reasoning in In re Harmon, No. 1:19-BK-01424-TLM, 2021 WL 3087744, at *2 (B.A.P. 9th Cir. July 20, 2021), and Nardello v. Balboa (In re Nardello), 514 B.R. 105 (D.N.J. 2014), where the courts found that section 586 permits the trustee to retain pre-confirmation fees.

The court found the debtor’s action for attorney fees under the Federal Tort Claims Act to be procedurally flawed because she failed to exhaust her administrative remedies as required by 28 U.S.C. § 2675(a). Additionally, the court found her FTCA claim to be unsustainable as the government waived its sovereign immunity under that statute only in the case of government employees and the trustee is not a government employee.

The court affirmed.

The debtor has appealed to the Second Circuit, case no. 22-155.

Soussis ED NY Jan 2022


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