Harris v. Viegelhan

Under§ 348(f) of the Bankruptcy Code, a debtor who in good faith converts from a Chapter 13 bankruptcy to a Chapter 7 bankruptcy is entitled to a refund of any accumulated wages.

Petitioner filed for Chapter 13 bankruptcy and agreed to a plan to withhold money from his post-petition wages to repay secured creditors. The Chapter 13 trustee collected petitioner’s post-petition wages and distributed payments to Chase bank for a mortgage and another secured creditor. Petitioner again fell behind on payments and Chase foreclosed on his home. The trustee stopped making payments to Chase and the money withheld accumulated. Petitioner then converted to a Chapter 7 bankruptcy. Eleven days after the conversion, the trustee distributed the accumulated withheld wages to unsecured creditors. The Fifth Circuit overturned the district court, which granted petitioner’s motion to refund his post-petition accumulated wages. The Court held that § 348(f) of the Bankruptcy Reform Act makes clear that a debtor who in good faith converts from a Chapter 13 bankruptcy, where the debtor is not entitled to post-petition wages, to a Chapter 7 bankruptcy, where the debtor is entitled to post-petition wages, is entitled to a refund of any accumulated wages. The Court recognized that the trustee has control over the amount of accumulated funds based on how quickly funds are distributed.