What happens with the funds on hand with a Chapter 13 Bankruptcy Trustee when a case is Dismissed, Post Confirmation – Michigan

In Michigan, the leading case on this subject is In re: Gonzales (Bankr. W.D. Mich. Dec. 21, 2017). Here, Judge Dales stated that “a chapter 13 trustee in possession of post-confirmation bankruptcy plan payments when the dismissal order is entered must remit them to the debtor, unless a court order provides otherwise.” In re Gonzales, at *1.  In reaching that conclusion, Judge Dales referenced Judge Shefferly, stating that “Congressional intent in § 349(b) is “to basically unwind the entire case as if it never happened.”  Bateson, 551 B.R. at 813 (citing HarrisIn re Gonzales, No. DL 14-04778, at *7 (Bankr. W.D. Mich. Dec. 21, 2017).

However, Judge Dales went on to clarify that as the Sixth Circuit reminded us earlier this month, “[l]egislating is for Congress, not the courts,” and “it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done . . . .” Nestlé Waters North America, Inc. v. Mountain Glacier LLC (In re Mountain Glacier LLC) In re Gonzales, No. DL 14-04778, at *8 (Bankr. W.D. Mich. Dec. 21, 2017). “In addition, federal trustees are bound to follow state law. 28 U.S.C. § 959(b). So long as there is no controlling federal law, state law applies... In Michigan, when one person transfers property to another person for delivery to a third person upon the occurrence of specified conditions, an escrow arises… When the conditions precedent to the release of the escrowed property do not come to pass, the property is returned to the original transferor. Noakes v. Noakes, 290 Mich. 231, 287 N.W. 445 (1939).  

Under the circumstances, the Trustee finds herself in the position like an escrow agent in receipt of payments made to her for distribution under a prior arrangement that no longer remains in effect. Much as a title company returns to the buyer a down payment on a sale that has fallen through, the Trustee must return the payment to its source, the Debtor… The Debtor, rather than her creditors, has the stronger claim to the Funds.” – In re Gonzales, at *9-10.

In regards to attorney fees, “the court’s dismissal order ought to briefly postpone the revesting of prepetition estate property under § 349(b)(3) in order to give interested parties an opportunity to ask the court to order otherwise, “for cause.” 11 U.S.C. § 349(b)(3)In re Gonzales, at *13.

With any further questions on Chapter 13 (or Chapter 7) bankruptcies in Michigan, please contact us at our Grand Rapids, Michigan office, (616) 920-0555.

Law Office of Russell & Tighe, PC


You might also like