In re Fam

645 B.R. 1

IN RE: Mark FAM, Debtor.

Case No. 19-00003-ELG

United States Bankruptcy Court, District of Columbia.

Signed August 31, 2022

Benjamin Joseph Beatty, Rebeca A. Herr, Chapter 13 Trustee, Annapolis, MD, for Trustee.

Daniel M. Press, Chung & Press, P. C., McLean, VA, for Debtor.

MEMORANDUM OPINION AND ORDER

Elizabeth L. Gunn, United States Bankryptcy Judge

This matter was brought before the Court on the dismissed former Debtor's Motion to Compel Standing Trustee to Turn Over Funds on Hand as of Dismissal of Case (ECF No. 102) (the "Turnover Motion"), seeking the Court to cause the chapter 13 trustee (the "Trustee") to turn over $18,340.80, the amount held by the Trustee as of the dismissal of this case and subsequently disbursed to creditors after dismissal pursuant to the terms of the Order Confirming Second Amended Plan Filed May 14, 2019 (ECF No. 57) (the "Confirmation Order"). The main issue in this case is whether language in the Supreme Court's decision in Harris v. Viegelahn, 575 U.S. 510, 135 S.Ct. 1829, 191 L.Ed.2d 783 (2015) calls into question this Court's previous opinion in In re Parrish , 275 B.R. 424 (Bankr. D.D.C. 2002). Parrish held, inter alia , that upon dismissal of a chapter 13 case, the Bankruptcy Code¹ required the chapter 13 trustee to disburse post-petition, post-plan confirmation payments then held by the trustee to creditors, not to the debtor. For the reasons set forth herein, the Court finds that, unless ordered otherwise, upon dismissal of a chapter 13 case in which a plan has been confirmed, the Bankruptcy Code requires a chapter 13 trustee to return any post-petition wages held to the debtor. However, on the facts of this case, because there is a final order directing otherwise, the Debtor's Turnover Motion must be denied.

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Findings of fact shall be construed as conclusions of law and conclusions of law shall be construed as findings of fact when appropriate. See Fed. R. Bankr. P. 7052.

II. Background

The relevant facts in this case are not in dispute. On January 3, 2019 (the "Petition Date")² , the Debtor filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code. On May 14, 2019, the Debtor filed his Second Amended Chapter 13 Plan (ECF No. 53) (the "Plan"). The Plan provided for a 100% plus 6% interest distribution to all creditors with monthly payments of $1,000 for four months, then $1,200 per month for an additional twenty months, plus the sale of real property located on Aspen Street in Alexandria, Virginia (the "Property") in an amount to pay off the mortgage on the Property in full and any remaining balance due under the Plan. Plan, §§ 3, 4.D, 10, ECF No. 53. Specifically, Section 10 of the Plan provided:

Debtor shall sell his real property at 219 Aspen St., Alexandria VA within two years of filing and pay off the mortgage in full (including all arrears), as well as the remaining balance due under the plan so as to pay all allowed claims in full. Pending such sale, Debtor shall make adequate protection payments to the holder/servicer of that claim (Ditech) in the amount of the regular monthly mortgage payment (at present approximately $2275.55), and, after payment of administrative expenses and all other allowed claims in full, Trustee shall pay $1080 per month, plus any additional funds on hand, in additional adequate protection payments to Ditech.

(the "Plan Sale Language"). Plan, § 10, ECF No. 53. Upon recommendation of the Trustee,³ the Confirmation Order was entered on July 5, 2019. The Plan Sale Language also appears in the Confirmation Order as an "ORDERED" paragraph. Confirmation Order, p. 2, ECF No. 57. The Conformation Order also provides, in relevant part,

ORDERED, that notwithstanding 11 USC § 1327(b), confirmation of the plan shall not vest the property of the estate in the debtor(s) until the plan has been completed and the court has entered a discharge order (or if no discharge was obtained, until the court has entered an order closing the case or an order discharging the Trustee), and it is further,

(the "Vesting Language"), and

ORDERED, that funds received and deposited prior to midnight of the date of entry of a dismissal order shall be distributed in accordance with the terms of the confirmed plan, ...

(the "Dismissal Language"). Confirmation Order, p. 2, ECF No. 57. Under the terms of the Plan and Confirmation Order, the Debtor was required to sell his Property on or before January 19, 2021.

In October 2020, NewRez LLC d/b/a/ Shellpoint Mortgage Servicing ("NewRez")⁴ filed a motion for relief from the automatic stay as to the Property, alleging a post-petition default of twenty payments on the Property in the total amount of $44,722.62 plus fees and costs (the "Motion for Relief"). NewRez Mot. Relief, ECF No. 71. The Debtor objected to the Motion for Relief and an Agreed Order Modifying Stay as it Applies to Real Property was entered on December 8, 2020 (the "Consent Order"). Debtor's Obj. to NewRez Mot. Relief, ECF No. 75; Agreed Order Modifying Stay, ECF No. 78. Under the terms of the Consent Order, NewRez was given relief from stay as to the Property but agreed to forbear from exercising any right to foreclose upon the terms and conditions contained therein including resumption of regular monthly payments of over $2,100 in December 2020 plus additional monthly cure payments of almost $8,000 each from December 2020 through May 2021. Agreed Order Modifying Stay, ECF No. 78.

On May 5, 2021, the Trustee filed a motion to dismiss the Debtor's case for failure to comply with the Plan and Confirmation Order because the Property was not sold on or before January 19, 2021 and therefore there was an unreasonable delay prejudicial to creditors under § 1307(c)(1) (the "Motion to Dismiss").⁵ Trustee's Mot. Dismiss, ECF No. 80. One week later, on May 12, 2021, the Debtor filed his Motion to Modify Plan (the "Motion to Modify") along with a proposed Modified Plan. Debtor's Mot. Modify Plan, ECF No. 82. In the Motion to Modify, the Debtor alleged that the Trustee had misapplied the Debtor's plan payments to date, specifically distributing all funds after payment of the Trustee's statutory fee to Ditech/NewRez and not to unsecured creditors as called for in § 10 of the Plan. Id. at ¶ 2. The Debtor alleged that the misapplied funds were an amount sufficient to pay all unsecured creditors in full in the Debtor's case. Id.

The Motion to Modify then went on to disclose that the Debtor had not sold the Property as called for by the Plan and Confirmation Order, instead moving back into the Property after the loss of income due to COVID-19. Id . at ¶ 3. Therefore, the Debtor sought to modify the Plan, providing for funding of $18,900 for the first twenty-six months, $100 a month for the next twenty-four months, proposing another two years (i.e., four years after the Petition Date) for the Debtor to sell the Property, and to continue to make regular monthly payments to Ditech/NewRez until the Property was sold. Id . at ¶ 5. On May 26, 2021, the Debtor filed a response to the Motion to Dismiss, arguing that the proposed Modified Plan, if confirmed, would remedy the alleged basis for dismissal in the Motion to Dismiss. Debtor's Resp. Trustee's Mot. Dismiss, ECF No. 84.

Unsurprisingly, after waiting over two years for the sale of the Property under the Plan and Confirmation Order, on June 2, 2021, NewRez filed its Objection to Confirmation of Debtor's Proposed Chapter 13 Plan (the "Confirmation Objection"). NewRez Obj. Confirmation Debtor's Proposed Plan, ECF No. 85. In the Confirmation Objection, NewRez argued that the Modified Plan was not equitable or feasible, was not supported by an application to employ a realtor, and that the Debtor had not shown any progress towards the sale of the Property since the Petition Date, instead having taken steps contrary to the sale of the Property by moving into the Property during the pendency of the case. Id . at ¶¶ 8-12. Further, NewRez argued that it entered into the Consent Order based upon the terms of the Plan and Confirmation Order that the Property was to be sold within a few months of entry thereof and a further delay of two years would be inequitable. Id . at ¶ 10.

The hearings on the Debtor's Motion to Modify and the Trustee's Motion to Dismiss were continued numerous times – originally set for June 2021, heard briefly in July 2021, and then continued multiple times until December 2021. At the hearing held December 17, 2021, the Debtor was not present, but counsel for the Debtor represented to the Court that the Debtor had advised him that morning that he had received an offer to purchase the Property. Without more details, the Court continued the hearing to January 14, 2022, on the condition that the Debtor be present to testify as to any proposed sale and that if the Debtor was not present, the case would be dismissed. See Minute Entry, ECF No. 90.

Prior to the continued hearing and consistent with counsel's representations as to the receipt of an offer for the Property, on December 23, 2021, the Debtor filed his Motion to Approve Sale of Real Property (the "Sale Motion"). Debtor's Mot. Approve Sale, ECF No. 91. As set forth in the Sale Motion, the proposed sale was for $640,000 to an entity identified as Overseas Development Co. with an address in Denver, Colorado. Id . at 2. The offer was obtained without the use of a real estate agent. Id . at 3. The Sale Motion attached and incorporated a Virginia Residential Real Estate Purchase Agreement between the Debtor and the proposed purchaser (the "Purchase Agreement"). Additional relevant terms of the proposed sale included in the Purchase Agreement was a good faith deposit not due until December 27, 2021 (four days after the filing...