On May 18, 2015, the US Supreme Court decided Harris v. Viegelahn, No. 14-400.   Here is a copy of the opinion:  www.supremecourt.gov

The issue was whether the debtor was entitled to a refund of money held by the Trustee at the time a Chapter 13 case is converted to a Chapter 7 case.  The Supreme Court ruled in favor of the debtor.  The undistributed wages collected by the Chapter 13 Trustee do not become part of a converted Chapter 7 estate.

The Supreme Court’s opinion may have opened up “Pandora’s Box,” in regard to cases where the Trustee files motions to modify to increase the plan payment based on increased income.  Debtors usually oppose motions to modify to increase the plan payment on the basis that debtors are only required to commit their “projected disposable income,” in accordance with the Supreme Court’s opinion in Hamilton v Lanning.  In the Harris opinion, the Court stated that “[i]n a Chapter 13 proceeding, post-petition wages are ‘[p]roperty of the estate,’ 11 USC 1306(a), and may be collected by the Chapter 13 trustee for distribution to creditors” under Section 1322(a)(1).

What’s the impact of the decision?  Does that statement by the Supreme Court eliminate the argument, in opposition to a Trustee’s motion to modify to increase the plan payment, that debtors only have to contribute their “projected disposable income” to the plan?  I think it torpedoes the debtor’s argument in those situations.   Debtors will be forced to rely on current income and expense schedules to defend against a Trustee’s motion to modify to increase the plan payment.

What else does it impact?  Sometimes upon conversion to a Chapter 7 proceeding, debtor’s counsel will file an application for payment of an administrative claim to cover the attorneys fee for conversion to a Chapter 7 proceeding.   The Harris opinion requires the Trustee to provide a full refund to the debtor, so debtors will have to pay the attorneys fee from the refund, if they so choose.  Attorneys fees post-conversion are a dischargeable debt.