§ 54.9     Compensation When Case Is Dismissed or Converted before Confirmation
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 54.9, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

There is much local variation whether the Chapter 13 trustee is entitled to compensation or reimbursement of expenses and in what amount when the case is dismissed or converted before confirmation.

[2]

11 U.S.C. § 1326(a)(2) states that if a Chapter 13 plan is not confirmed, “the trustee shall return any [payments made by the debtor] to the debtor, after deducting any unpaid claim allowed under § 503(b) of this title.” The percentage fee for compensation and expenses fixed by 28 U.S.C. § 586(e) fits awkwardly, if at all, within the administrative expenses described in 11 U.S.C. §§ 503(b)(1)(A) or 503(b)(2).1 There is much room for dispute whether the standard percentage deducted from payments received by the trustee but never disbursed would be “reasonable . . . actual . . . necessary” expenses in an unconfirmed case. If the fees and expenses fixed by the Attorney General under 28 U.S.C. § 586(e) are not administrative expenses within the meaning of 11 U.S.C. § 503(b), then a standing trustee will not be entitled by § 1326(a)(2) to collect fees or expenses from the funds on hand before returning the balance to the debtor in an unconfirmed case. The trustee might argue that the percentage fee can be collected “before” payments to creditors under § 1326(b)(2) even in a case that is dismissed before confirmation.2 But this argument runs squarely into the clear instruction in § 1326(a)(2) that payments “shall be retained by the trustee until confirmation or denial of confirmation of a plan.”

[3]

In an unpublished decision, the Bankruptcy Appellate Panel for the Tenth Circuit concluded that the standing Chapter 13 trustee is not entitled to any fee or expense reimbursement when the case is dismissed before confirmation. In Skehen v. Miranda (In re Miranda),3 the BAP first found that § 1326(a)(2) “unambiguously calls for the standing Chapter 13 trustee, if a plan is not confirmed, to return all payments to the debtor, less any administrative expense pursuant to § 503(b).”4 The BAP then held that the standing trustee’s percentage fee under 28 U.S.C. § 586(e) is not an administrative expense within the meaning of § 503(b). To bolster the resulting conclusion that the standing Chapter 13 trustee cannot recover fees or expenses at dismissal before confirmation, the BAP contrasted the different construction of Chapter 12.

[4]

Consistent with Chapter 13, § 1226(a) requires the trustee in a Chapter 12 case to retain payments received from the debtor “until confirmation or denial of confirmation of a plan.”5 If a Chapter 12 trustee is serving in the case and a plan is not confirmed, the trustee must return payments to the debtor net of administrative expenses with an additional deduction for “the percentage fee fixed for such standing trustee.”6 The BAP found this statutory protection for the standing trustee’s percentage fee in Chapter 12 cases—missing from § 1326(a) in Chapter 13 cases—to be substantial support for denying fees and expenses at dismissal before confirmation of a Chapter 13 case:

The Chapter 12 debtor who makes preconfirmation payments risks losing the amount of the trustee fee even if the plan is not confirmed. But, this is an unnecessary risk, because Chapter 12 contains no provision requiring the debtor to make payments prior to plan confirmation. . . . In contrast, the provisions of Chapter 13 require the debtor to begin making payments within 30 days after filing the plan. 11 U.S.C. § 1326(a)(1). Yet, this obligation to make preconfirmation payments does not pose a risk to the Chapter 13 debtor. Unlike Chapter 12, if the Chapter 13 plan is not confirmed and the case is dismissed or converted, the standing Chapter 13 trustee is authorized to pay unpaid administrative claims, but she is not authorized to deduct her standing trustee’s percentage fee.7
[5]

In some jurisdictions, by local rule or practice, at termination of an unconfirmed case the trustee receives a fixed amount, rather than a percentage of payments received—$25 in some jurisdictions—to defer the expenses of setting up the case, sending notice to creditors, and so forth.8 It seems logical that at least the actual expenses of a standing Chapter 13 trustee are recoverable from funds on hand in an unconfirmed case, but there is no clear path through the Code to this outcome.

[6]

The reference in § 503(b)(2) to compensation and reimbursement awarded under § 330(a) supports that a Chapter 13 trustee who is not a standing trustee can claim compensation and reimbursement of expenses as administrative expenses in an unconfirmed case. It is at least ironic that there is not also a specific reference to the fees and expenses of a standing trustee under 28 U.S.C. § 586(e) in the description of administrative expenses in § 503.9

[7]

Allowance of compensation and expenses of the trustee upon conversion (or dismissal) of a Chapter 13 case is further confused by much dispute whether funds held by the Chapter 13 trustee at conversion (or dismissal) belong to the debtor, are properly distributed to creditors, should be paid over to the Chapter 7 trustee or are subject to exemption in the Chapter 7 case.10


 

1  See § 293.1 [ Trustee’s Fees and Expenses ] § 136.4  Trustee’s Fees and Expenses before BAPCPA.

 

2  See §§ 293.1 [ Trustee’s Fees and Expenses ] § 136.4  Trustee’s Fees and Expenses before BAPCPA and 338.1 [ In General ] § 153.1  In General.

 

3  2001 WL 1538003 (B.A.P. 10th Cir. Dec. 4, 2001) (unpublished).

 

4  2001 WL 1538003, at *2.

 

5  11 U.S.C. § 1226(a).

 

6  11 U.S.C. § 1226(a)(2).

 

7  2001 WL 1538003, at *2–*3.

 

8  See In re Doherty, 229 B.R. 461 (Bankr. E.D. Wash. 1999) (At dismissal before confirmation when State of Washington levied on trustee before trustee could return payments to the debtor under § 1326(a)(2), trustee is entitled by local rule to deduct $516 for administrative expenses before paying balance of $9,330 to the state.).

 

9  See § 293.1 [ Trustee’s Fees and Expenses ] § 136.4  Trustee’s Fees and Expenses before BAPCPA.

 

10  See §§ 315.1 [ In Cases Filed before October 22, 1994 ] § 143.1  In Cases Filed before October 22, 1994 and 316.1 [ In Cases Filed after October 22, 1994 ] § 143.2  In Cases Filed after October 22, 1994.