In re Michael

In re Michael, No. 11-1992 (3d Cir. Oct. 26, 2012)
The Third Circuit Court of Appeals held that if, upon conversion of a Chapter 13 case to a case under Chapter 7, the Chapter 13 trustee is holding funds acquired post-petition by the debtor for eventual distribution to creditors under a confirmed Chapter 13 plan of reorganization, the trustee must return those funds to the debtor rather than distribute them to creditors under the plan.
Procedural context:
The Third Circuit affirmed the decisions of the bankruptcy and district courts,
In connection with a Chapter 13 plan of reorganization, the debtor’s wages were attached and paid directly to the Chapter 13 trustee for distribution to creditors. A mortgagor foreclosed on the debtor’s property, refusing to accept further payments from the trustee. The trustee continued receiving payments directly from the debtor’s employer, and funds accumulated in the debtor’s account. Almost three years later, the debtor converted his case to Chapter 7 and moved for an order compelling the trustee to return those accumulated amounts. The trustee objected, arguing that the funds should be distributed to unsecured creditors under the plan. The bankruptcy court ruled in favor of the debtor, and the district court affirmed.
Sloviter, Ambro and Roth

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