The 9th Circuit Adopts NCBRC and NACBA’s Amici Argument and Holds A Chapter 13 Trustee May Not Collect Her Percentage Fee If The Chapter 13 Is Dismissed Prior To Confirmation

Posted by JIm Haller - June 13, 2023

On June 12, 2023 the Ninth Circuit Court of Appeals held that 11 U.S.C. § 1326(b) requires a chapter 13 trustee to turnover all plan payments to the Debtor upon dismissal before confirmation, without deducting her statutory fee. See Steedman v. McCallister (In re Evans), No. 22-35216, 2023 U.S. App. LEXIS 14571 (9th Cir. June 12, 2023).

The court agreed with the interpretation of the law submitted by the National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys.

“The better approach, as proposed by amicus National Consumer Bankruptcy Rights Center and National Association of Consumer Bankruptcy Attorneys (NCBRC), is to read 28 U.S.C. § 586 and 11 U.S.C. § 1326 together. … We generally agree with NCBRC’s construction of the relevant statutes, which renders harmonious an otherwise fragmented scheme.”

Joining the Tenth Circuit, the Ninth Circuit held that the trustee was not entitled to a percentage fee of plan payments as compensation for her work in the Chapter 13 case. 28 U.S.C. § 586(e)(2) provides that the trustee shall “collect” the percentage fee from “payments . . . under plans” that she receives. 11 U.S.C. § 1326(a)(1) provides for the debtor to make payments in the amount “proposed by the plan to the trustee.” Section 1326(a)(2) provides that the trustee shall retain these payments “until confirmation or denial of confirmation.” This section further provides that if a plan is not confirmed, the trustee shall return to the debtor any payments not previously paid to creditors and not yet due and owing to them. Section 1326(b) provides that, before or at the time of each payment to creditors under the plan, the trustee shall be paid the percentage fee under § 586(e)(2).

The court held that, reading these statutes together, “payments . . . under plans” in § 586 refers only to payments under confirmed plans. Prior to confirmation a trustee does not “collect” or “collect and hold” fees under § 586, but instead “retains” payments “proposed by the plan” pursuant to § 1326(a)(2). If a plan is not confirmed, then § 1326(a)(2) requires return to the debtor of payments “proposed by the plan.” If a plan is confirmed, then § 1326(b) provides for payment of the percentage fee to the trustee. Thus, under the plain meaning of the statutory text, a trustee is not paid her percentage fee if a plan is not confirmed. The court concluded that statutory canons of construction, such as the rule against superfluities, and the provisions’ amendment history confirmed its reading of the statutes. And policy arguments made by the trustee were not enough to overcome the plain language and context of the relevant statutory provisions.

The Second Circuit has this issue under consideration in Soussis v. MaccoCase No. 22-155 (2nd Circuit).  Also, the 7th Circuit has been asked to take up this issue on a direct appeal from In re Johnson, Case No. 22-04449 (Bankr. N.D. IL, May 12, 2023).

In re Evans – 9th CircuitEvans

9th Cir NCBRC amicus July 2022

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