In In re McCrorey, 18-00696 (Bankr. D. Idaho Jan. 26, 2024) [1] , Chief Bankruptcy Judge Noah G. Hillen of Boise, Idaho, held that if a trustee recovers an estate asset after the debtor made their last payment under a chapter 13 plan, the recovery goes to the debtor in the absence of a provision in the plan directing the asset to creditors.
In 2018, a couple filed a Chapter 13 bankruptcy petition, and in 2019, the debtors confirmed a plan that required them to make payments for 60 months, which provided no payments to unsecured creditors. In 2023, the Chapter 13 Trustee filed a “Notice of Completion of Plan” stating that the debtors had completed all their payments, and a final report would be filed. A few days later, the order of discharge was entered. However, back in 2015, Wells Fargo repossessed the debtors’ vehicle and in 2023 issued a check for almost $5,0000 representing an overpayment that the debtor had made years before the filing. The check represented payment on a claim belonging to the debtors’ estate. Judge Hill received an order from the trustee and the debtors authorizing the trustee to distribute the $5,000 to creditors. Judge Hill was faced with the issue of how the $5,000 would be paid to the creditors at such a late date.
First, Judge Hill expressed that if the funds were viewed as payments by the debtors into the plan, the plan would require modification. However, under § 1329(c), modification is impossible after the debtors complete all 60 months of payment. Modification is only warranted “at any time after confirmation of the plan, but before the completion of payments under such plan.” Here, modification was not called for because the trustee did not seek to modify the plan, and the parties had not agreed to modification in the proposed stipulated order.
Second, Judge Hill inquired whether the funds were to be viewed as an asset “recovered” by the Trustee. If this were the case, modification may not be required. The plan provided that unsecured creditors would be paid pro rata after disbursements were made to other creditors under the plan. However, Part 7 of the plan stated that property of the estate vests in debtors at plan confirmation. Despite the trustee citing cases where recoveries after discharge went to creditors, Judge Hillen led his decision by following a New Jersey decision from 2017 where the court did not allow creditors to recover after the plan was over. Further, Judge Hillen emphasized that the court could not locate any authority in the Bankruptcy Code or the confirmed plan to allow the Trustee to distribute the money to the debtor’s creditors when plan payments had already been made, and the discharge entered. He added that since the debtors and trustee agreed to this arrangement, the court must still approve the agreement.
Judge Hillen announced that he could not use the equitable powers of the court under section 105(a) to allow the payment to creditors. He cited the Supreme Court stating, “it is hornbook law that § 105(a) does not allow the bankruptcy court to override explicit mandate of other sections of the Bankruptcy Code. Section 105(a) confers authority to “carry out” the provisions of the Code, but it is quite impossible to do that by taking action that the Code prohibits. This is simply an application of the axion that a statute’s general permission to take actions of a certain type must yield to a specific prohibition elsewhere.” Ultimately, Judge Hillen declined to exercise his discretion to approve the arrangement that was agreed to by the parties and directed the trustee to remit the funds to debtors.
[1] Full Case in Article: https://www.abi.org/newsroom/daily-wire/a-refinanced-consumer-loan-might-not-be-a-%E2%80%98consumer-debt%E2%80%99-ninth-circuit-says
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