Term: 2014
Docket: 14-400
Harris v. Viegelahn
- Pro
14-400 HARRIS V. VIEGELAHN DECISION BELOW: 757 F.3d 468 CERT. GRANTED 12/12/2014 QUESTION PRESENTED: Chapter 13 of the Bankruptcy Code allows debtors to repay their creditors by turning a portion of their monthly income over to a Chapter 13 trustee for distribution to those creditors. At any time, however, a debtor may convert a Chapter 13 bankruptcy case to one under Chapter 7. Congress has provided that "[e]xcept" where the conversion is made in bad faith, the resulting Chapter 7 estate is limited to the debtor's property "as of the date" the original Chapter 13 petition was filed; it does not include wages or property that the debtor acquired after the petition date. 11 U.S.C. § 348(f). The question presented is: 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, 699 F.3d 305 (2012) or distributed to creditors (as the Fifth Circuit held below). LOWER COURT CASE NUMBER: 13-50374
In the case of Harris v. Viegelahn, the U.S. Supreme Court ruled in favor of Charles E. Harris III, a Chapter 13 bankruptcy debtor who converted his case to Chapter 7 after his plan was confirmed but before all payments were made under that plan. The issue at hand was whether undistributed funds held by the Chapter 13 trustee should be returned to Mr. Harris or distributed to creditors upon conversion from Chapter 13 to Chapter 7 bankruptcy proceedings. The court unanimously decided that any post-petition wages not yet distributed by a chapter-13 trustee at the time of conversion revert back to the debtor and are not paid out towards unsecured debts as part of a chapter-7 liquidation process. This decision clarified an important aspect regarding what happens when debtors switch between different types of bankruptcies mid-process, providing more protection for individuals seeking relief through bankruptcy.
In the case of Harris v. Viegelahn, there was no dissenting opinion recorded as the decision by the Supreme Court was unanimous (9-0) in favor of Charles E. Harris II, the petitioner. The court held that a debtor who converts to Chapter 7 is entitled to return any post-petition wages not yet distributed by his Chapter 13 trustee. This ruling emphasized that undistributed funds remain part of the debtor's estate and should be returned upon conversion unless they have been disbursed in accordance with an approved plan or are subject to valid liens or administrative expenses.
