Acknowledging that the statutory language "does not say expressly" what should happen, the Supreme Court nevertheless ruled that undistributed funds held by the Chapter 13 trustee should be returned to the debtor following a conversion. The Court described its result as "the most sensible reading of what Congress did provide." Justice Ginsberg wrote the opinion for an unanimous Court. Harris v. Viegelahn, No. 14-400 (5/18/15).
What HappenedCharles Harris, III began his trip to the Supreme Court when he filed a chapter 13 petition in San Antonio, Texas in February 2010. He was trying to save his home after defaulting upon his mortgage. However, by November 2010, the Court had lifted the stay to allow the lender to foreclose. A year later, he converted his case to chapter 7. At that time, the Chapter 13 Trustee had over $5,500 on hand. Rather than returning these funds to the debtor or paying them to the Chapter 7 trustee, she paid them to debtor's counsel and the unsecured creditors. The Debtor filed a motion for return of the funds. The Bankruptcy Court granted this motion and the trustee appealed. The Fifth Circuit reversed, finding that the Bankruptcy Court's order would allow the Debtor to receive a "windfall." In re Harris, 757 F.3d 468 (5th Cir.