Supreme Court Decides Charles E. Harris, III, Petitioner v. Mary K. Viegelahn, Chapter 13 Trustee

No. 14-400 (Certiorari to the U.S. Court of Appeals for the Fifth Circuit)

Issue: Whether, when a debtor in good faith converts a bankruptcy case to Chapter 7 after confirmation of a Chapter 13 plan, undistributed funds held by the Chapter 13 trustee are refunded to the debtor (as the Third Circuit held in In re Michael), or distributed to creditors (as the Fifth Circuit held below). (SCOTUSblog)

Decision: Supreme Court holds that debtor gets the undistributed money on conversion. On May 18, the unanimous Supreme Court reversed the Fifth Circuit, holding that, absent bad faith, when the Chapter 13 debtor converts to Chapter 7, any undistributed money held by the Chapter 13 trustee must be returned to the debtor, rather than distributed to creditors. The decision is based on construction of § 348(f) and termination of the Chapter 13 trustee’s services upon conversion under § 348(e).

757 F. 3d 468, reversed and remanded. The opinion may be found at 2015 WL 2340847 or by clicking here.

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