In re Hoggarth, Case No. 14-24810 EEB

The Debtor’s case was converted from chapter 13 to chapter 7 prior to confirmation of a chapter 13 plan.  The Debtor’s attorney filed an application for payment of her fees from undistributed plan payments held by the chapter 13 trustee at the time of conversion.  The Court ruled that the Supreme Court’s decision in Harris v. Viegelahn, 135 S. Ct. 1829 (2015) (“Harris”), required that all undistributed plan payments be returned to the Debtor, without payment of the attorney’s fees.  The attorney argued that because the Debtor’s case was converted prior to confirmation of a plan, and Harris involved a post-confirmation conversion, the Harris case was distinguishable.  The Court acknowledged that when a chapter 13 case is dismissed prior to confirmation of a plan, the third sentence of § 1326(a)(2) requires that administrative expenses be paid prior to the return of plan payments to the debtor.  However, the Court could not ignore the Supreme Court’s ruling in Harris that the second sentence of § 1326(a)(2) and “no provision of chapter 13 holds sway” after a case is converted to chapter 7.  The Court found the language and reasoning of Harris broad enough to encompass the situation where a case is converted prior to confirmation.  It also found that payment of chapter 13 administrative expenses upon conversion could frustrate the statutory priority scheme of § 726(b).  The attorney also argued that Harris involved payments made to secured and unsecured creditors and did not address whether administrative claims could be paid from plan payments upon conversion.  The Court found, however, that the Supreme Court did not appear to use the term “creditor” in its technical sense, as it is defined by § 101(1) of the Code, or give any indication that it intended to distinguish between payments to “creditors” from payments to administrative expense claimants.  Rather, the Supreme Court appeared to use the term more broadly to refer to all those entitled to receive distributions of plan payments and was unequivocal that the trustee’s authority to make plan payments ended at conversion.