§ 159.9 — Chapter 7 Trustee Compensation: § 1326(d)

Revised: June 24, 2010

[1]

In § 1326(b)(3) and (d), the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)1 created something new to bankruptcy: a debt discharged in a prior bankruptcy case that is collectible in a Chapter 13 case.2 This contradiction is described as follows:

(b) Before or at the time of each payment to creditors under the plan, there shall be paid—
. . . .
(3) if a chapter 7 trustee has been allowed compensation due to the conversion or dismissal of the debtor’s prior case pursuant to section 707(b), and some portion of that compensation remains unpaid in a case converted to this chapter or in the case dismissed under section 707(b) and refiled under this chapter, the amount of any such unpaid compensation, which shall be paid monthly—
(A) by prorating such amount over the remaining duration of the plan; and
(B) by monthly payments not to exceed the greater of—
(i) $25; or
(ii) the amount payable to unsecured nonpriority creditors, as provided by the plan, multiplied by 5 percent, and the result divided by the number of months in the plan.
. . . .
(d) Notwithstanding any other provision of this title—
(1) compensation referred to in [§ 1326(b)(3)] is payable and may be collected by the trustee under that paragraph, even if such amount has been discharged in a prior case under this title; and
(2) such compensation is payable in a case under this chapter only to the extent permitted by [§ 1326(b)(3)].3
[2]

The conditions, mechanics and limitations on the payment of compensation to a prior Chapter 7 trustee under § 1326(b) are discussed elsewhere.4 For current purposes, it is fascinating that new § 1326(d)(1) specifically allows payments during a Chapter 13 case even if the compensation described in § 1326(b)(3) “has been discharged in a prior case under this title.”5 It’s not accurate to describe this as a new exception to discharge because collection under nonbankruptcy law of the payments in new § 1326(b)(3) is not authorized. In other words, the compensation of a prior Chapter 7 trustee described in § 1326(b)(3) is only collectible in a subsequent Chapter 13 case. But new § 1326(d) clearly authorizes collection of a debt that was discharged in a prior bankruptcy case. This is new.

[3]

Fascination aside, it is not likely that § 1326(b)(3) and (d) will become a major factor in Chapter 13 practice. At this writing—nearly five years after the enactment of BAPCPA—there are few reported decisions citing or interpreting this new provision.6 Compensation in a Chapter 7 case is constrained by § 326 to cases in which a trustee disburses or turns over monies.7 It will be an unusual Chapter 7 case in which the trustee disburses or turns over monies and yet compensation is allowed the trustee “due to” conversion or dismissal for abuse under § 707(b). When that strange Chapter 7 case arises, a portion of the Chapter 7 trustee’s compensation must remain unpaid before § 1326(d)(1) has any application. It is hard to imagine a Chapter 7 case that would be dismissed or converted for abuse under § 707(b) after discharge and after allowance of compensation to the trustee.

[4]

Perhaps § 1326(d)(1) contemplates an intervening case—under Chapter 7 or, more likely, under Chapter 13—in which the debtor receives a discharge but does not pay the Chapter 7 trustee compensation in full. Then there has to be a subsequent Chapter 13 case in which § 1326(b)(3) would apply. This combination of serial cases and strange outcomes is more unlikely, if not impossible. If the first Chapter 7 case was abusive under § 707(b), what are the chances that a second Chapter 7 case would survive through discharge? And how would an intervening Chapter 13 case reach discharge without paying the trustee compensation from a prior case in full? But if the sky falls, § 1326(b)(3) and (d) are right there to make sure that up to $25 per month of the Chapter 7 trustee’s (discharged) compensation will be paid through the Chapter 13 plan. BAPCPA did a lot of strange things.


 

1  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

2  See also §§ 501.1 [ Order of Payments to Creditors ] § 113.8  Order of Payments to Creditors after BAPCPA, 526.1 [ Chapter 7 Trustee Compensation: New § 1326(b)(3) ] § 138.10  Chapter 7 Trustee Compensation: § 1326(b)(3) after BAPCPA and 538.1 [ Conversion to Chapter 13 after BAPCPA ] § 148.4  Conversion to Chapter 13 after BAPCPA.

 

3  11 U.S.C. § 1326(b), (d).

 

4  See §§ 501.1 [ Order of Payments to Creditors ] § 113.8  Order of Payments to Creditors after BAPCPA, 526.1 [ Chapter 7 Trustee Compensation: New § 1326(b)(3) ] § 138.10  Chapter 7 Trustee Compensation: § 1326(b)(3) after BAPCPA, 538.1 [ Conversion to Chapter 13 after BAPCPA ] § 148.4  Conversion to Chapter 13 after BAPCPA and 558.1 [ New and Changed Exceptions to Hardship Discharge ] § 160.7  Exceptions to Hardship Discharge Added or Changed by BAPCPA.

 

5  11 U.S.C. § 1326(d)(1).

 

6  See §§ 326.1 [ Effects of Conversion from Chapter 7 to Chapter 13 ] § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and 538.1 [ Conversion to Chapter 13 after BAPCPA ] § 148.4  Conversion to Chapter 13 after BAPCPA.

 

7  11 U.S.C. § 326(a).