Who Gets the Money Per the Third Circuit

By The Honorable William Houston Brown (Retired)

Funds held by trustee at conversion to Chapter 7 must be returned to debtor. The Third Circuit, with a dissent, held that plan payments not yet distributed to creditors and held by the trustee at the time of conversion to Chapter 7 must be returned to the debtor, in the absence of bad faith. Funds had accumulated in the trustee’s hands after stay relief had been granted to allow foreclosure, but the debtor had not modified the confirmed plan to reduce plan payments. The Circuit concluded that § 348 . . .

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