In re Demery, Case Number: 13–10783

570 B.R. 220

IN RE: Simmion Bashon DEMERY, Debtors

Case Number: 13–10783

United States Bankruptcy Court, W.D. Louisiana, Shreveport Division.

Signed March 31, 2017

Keith M. Welch, Simon, Fitzgerald, Cooke, et al., Shreveport, LA, for Debtors.

ORDER DENYING FEE APPLICATION AS MOOT

JEFFREY P. NORMAN, UNITED STATES BANKRUPTCY JUDGE

This matter is before the Court on the Ex Parte Application for Administrative Expenses (ECF No. 40) filed by counsel for the debtor, David K. Welch. The Court held a hearing on this matter on March 22, 2017. After considering the pleadings, evidence, testimony, and arguments, the Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, as incorporated by Federal Rules of Bankruptcy Procedure 7052 and 9014.2. To the extent any finding of fact is construed to be a conclusion of law, it is adopted as such. To the extent that any conclusion of law is construed to be a finding of fact, it is adopted as such. The Court reserves the right to make any additional findings and conclusions as may be necessary or as requested by any party. The Court also reserves the right to supplement the findings of fact and conclusions of law. For the following reasons, the application is denied as moot.

PROCEDURAL BACKGROUND

The debtor, Simmion Bashon Demery, filed this Chapter 13 bankruptcy case on April 3, 2013. His Chapter 13 plan was confirmed on July 19, 2013 (ECF No. 20). The debtor eventually voluntarily dismissed this case on July 15, 2015 (ECF No. 38). On July 28, 2015, which was after dismissal, counsel for the debtor filed a fee application seeking $350.00 for a plan modification which was never approved prior to the dismissal of the case. This Court originally denied the application (ECF No. 41) and a subsequent motion to reconsider (ECF No. 44). The Court denied the motion to reconsider as moot because the Chapter 13 Trustee held no funds to pay the requested compensation. The applicant timely appealed the order denying compensation. On appeal, the United States District Court reversed and remanded the fee application for a determination on the merits.

FINDINGS OF FACT

The debtor's case was filed on April 3, 2013, and was voluntarily dismissed on July 15, 2015. (ECF No. 38). While the case was pending (i.e., from the petition date to dismissal), the debtor paid $13,956.80 to the Chapter 13 Trustee. The payments were made exclusively through a wage order. After subtracting the trustee fees, the Chapter 13 Trustee made the following disbursements: $2,800.00 in attorney fees to debtor's counsel, $325.00 on an additional administrative claim for preparation of tax returns, and $9,822.40 on two secured claims including a vehicle.

At dismissal, the Chapter 13 Trustee still held undistributed funds totaling $1,219.25.¹ The Trustee held this same amount when the Court initially denied the instant application. These funds represented the debtor's post-petition wages paid by through a wage order by the debtor's employer, Schlumberger.² These funds were tendered directly by Schlumberger to the Chapter 13 Trustee. When the Court denied as moot the motion to reconsider (ECF No. 44), the Chapter 13 Trustee did have any funds on hand. The Chapter 13 Trustee had already disbursed funds to NCEP, LLC by AIS Data SVCS, LP³ ("NCEP") in the amount of $1,219.25 on August 4, 2016, which was after the dismissal. This disbursement accounted for all funds held by the Chapter 13 Trustee as of August 4, 2016. However, NCEP refunded $350.00 to the Chapter 13 Trustee on February 24, 2016, and the Trustee still holds these funds on hand. These funds were presumably recovered to pay the requested attorney compensation, but they still constitute the debtor's post-petition wages.

The applicant has offered two options for being paid the requested compensation. One, the application could be approved and $350.00 could be paid by the Chapter 13 Trustee from funds on hand. Two, the applicant argues the debtor could pay the compensation directly if the Trustee is ordered to refund the funds on hand to the debtor. This Court specifically denies both requests.

CONCLUSIONS OF LAW

The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This particular dispute is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (B) because it affects the administration of this Chapter 13 estate, as well as claims against the estate. Finally, this dispute is core under the general "catch-all" language of 28 U.S.C. § 157(b)(2). See Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 930 (5th Cir. 1999) ("[A] proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.").

The instant application was originally denied based on this Court's plain reading interpretation of 11 U.S.C. § 349. Specifically, this Court believed the debtor's undistributed wages, held by the Chapter 13 Trustee, revested in the debtor when his case was dismissed post-confirmation. This would have required all funds held by the Chapter 13 Trustee to be refunded to the debtor. Therefore, the funds could not be paid to the applicant as compensation. On the day the debtor's case was dismissed, the Chapter 13 Trustee held $1,219.25 which consisted of the debtor's post-petition wages.⁴ These funds should have been refunded to the debtor upon dismissal. If the funds had been properly refunded to the debtor, the Chapter 13 Trustee would have had no funds to disburse to the applicant.

11 U.S.C. § 349 provides the following:

(a) Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title.

(b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title—

(1) reinstates—

(A) any proceeding or custodianship superseded under section 543 of this title;

(B) any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or preserved under section 510(c)(2), 522(i)(2), or 551 of this title; and

(C) any lien voided under section 506(d) of this title;

(2) vacates any order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553 of this title; and

(3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title.

Several courts have applied 11 U.S.C. § 349 to post-confirmation dismissal of Chapter 13 cases and undistributed funds. In In re Edwards , 538 B.R. 536 (Bankr. S.D. Ill. 2015), a bankruptcy court addressed the issue concerning what a Chapter 13 Trustee must do with undistributed funds in cases dismissed subsequent to the confirmation of a plan. The court analyzed 11 U.S.C. §§ 1326(a)(2) and 349(b), and held that funds held by the Chapter 13 Trustee after the dismissal of a confirmed case must be returned to the debtor. The court held that 11 U.S.C. § 349(b)(3) states that, upon dismissal, property of the estate revests in the entity in which such property was vested immediately prior to the commencement of the case. In a post-confirmation Chapter 13 case, this requires funds on hand with the Trustee after dismissal (i.e., the debtor's post-petition wages) revest in the debtor. The Edwards court stated the following:

Courts are split as to whether creditors or debtors are entitled to receive funds held by the trustee at the time of a confirmed Chapter 13 case's dismissal. In a minority of courts, such funds must be distributed to creditors pursuant to the plan. See In re Darden , 474 B.R. 1, 7–9 (Bankr. D. Mass. 2012) ; In re Parrish , 275 B.R. 424, 425 (Bankr. D. D.C. 2002). A majority of courts, however, hold that such funds must be returned to the debtor. See Nash v. Kester (In re Nash ), 765 F.2d 1410, 1414 (9th Cir. 1985) ; Williams v. Marshall (In re Marshall ), 526 B.R. 695, 697–98 (N.D. Ill. 2014) ; In re Hamilton , 493 B.R. 31, 39 (Bankr. M.D. Tenn. 2013) ; In re Parker , 400 B.R. 55, 62 (Bankr. E.D. Pa. 2009) ; In re Slaughter , 141 B.R. 661, 663 (Bankr. N.D. Ill. 1992). Judicial disagreement as to the resolution of this issue is based on the interplay of two Code provisions: § 1326(a)(2) and § 349(b). Whereas courts in the minority hold that under § 1326(a)(2) the trustee must make disbursements pursuant to the confirmed plan no matter if the case is dismissed, the majority position is undergirded by § 349(b)'s directive that dismissal revests the debtor's post-petition earnings in the debtor. In re Edwards , 538 B.R. 536, 539–40 (Bankr. S.D. Ill. 2015).

This Court adopts the Edwards holding. This Court properly concluded that the fee application filed after dismissal in this case should be denied given 11 U.S.C. § 349.

The fact that funds were recovered and paid to the Chapter 13 Trustee does not change the Court's analysis. Any funds held by the Chapter 13 Trustee after dismissal should be refunded to the debtor pursuant to 11 U.S.C. § 349. If funds are recovered by the Chapter 13 Trustee post-dismissal in a Chapter 13 case that has previously been confirmed, those funds should always be refunded to the debtor.

The Court notes that the order dismissing the debtor's case contains no provision for the payment of additional attorney fees. Section § 349(b)(3) of the Bankruptcy Code provides "[u]nless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title—revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this...