Soussis v. Macco (In re Soussis)
Although lower courts have disagreed, the Second Circuit joined three other circuits in holding that a standing trustee may not retain the percentage fee when chapter 13 cases are dismissed before confirmation. Consequently, ‘13’ debtors with confirmed plans pay standing trustees’ fees.
- Rochelle Quick Take
View Rochelle Summary- Case Type:
- Consumer
- Case Status:
- Reversed and Remanded
- Citation:
- Docket No. 22-155 (2nd Circuit, May 09,2025) Published
- Tag(s):
- Ruling:
- The Second Circuit Court of Appeals held a standing trustee cannot keep a percentage fee collected from a debtor’s pre-confirmation payments if a chapter 13 plan isn't confirmed. While 28 U.S.C. § 586(e)(2) states a trustee “shall collect” their fee from "all payments received" under a plan they administer, 11 U.S.C. § 1326(a)(2) directs a trustee to return “payments . . . proposed by the plan” if confirmation doesn't occur. Together, the statutes direct a trustee to collect their fee from pre-confirmation payments, retain it prior to confirmation, and return it if a plan isn't confirmed.
- Procedural context:
- The Second Circuit's decision comports with rulings already issued by the Seventh, Ninth, and Tenth Circuits. In addition to the standing trustee, the U.S. Trustee for Region 2 (New York, Connecticut, Vermont), William K. Harrington, participated in the bankruptcy and district court proceedings and also was an appellee before the Second Circuit. Debtor first entered bankruptcy after the creditor holding a mortgage on debtor's residence filed a foreclosure action in 2007, and a default judgment was entered in 2008 authorizing a foreclosure sale. Debtor proceeded to file "five bankruptcy petitions between 2009 and 2015, each of which was dismissed—upon a motion from the standing trustee—within three to six months after her filing and before any Chapter 13 plan was confirmed." Debtor filed the bankruptcy case spawning this appeal in 2019, by which point she "had made no mortgage payments at all for over twelve years" and "was $454,797.33 in arrears on her mortgage." Debtor voluntarily dismissed this case in 2020 and "[s]ince that dismissal, [the debtor] has filed two additional Chapter 13 bankruptcy petitions, both of which were dismissed before confirmation upon a motion by the standing trustee."
- Facts:
- Debtor/Appellant Julia Soussis filed a chapter 13 petition in the U.S. Bankruptcy Court for the Eastern District of New York. Appellee Michael Macco, a standing trustee in that District, was appointed to handle Debtor’s bankruptcy case. Debtor proposed a repayment plan and made $362,100 in pre-confirmation payments to the standing trustee, who “retained” those payments in accordance with 11 U.S.C. § 1326(a)(2). About one year into the case, and before the bankruptcy court held a confirmation hearing, Debtor asked to dismiss the case. The trustee filed a final report and returned $341,508 of the pre-confirmation payments to Debtor, keeping $20,592 for his percentage fee (about 5.7% of the total amount paid). Debtor moved to disgorge the sum the trustee kept. The bankruptcy court denied the motion, concluding "that, by directing the standing trustee to 'collect' the percentage fee, Section 586(e)(2) means that '[t]he percentage fee is the Trustee's to keep, regardless of whether the debtor’s plan is confirmed.'” Debtor appealed to the U.S. District Court for the Eastern District of New York, which affirmed, while recognizing "some courts have interpreted the relevant statutes to reach a contrary conclusion[.]" Debtor timely appealed to the Second Circuit.
- Judge(s):
- SACK, CARNEY, and BIANCO