10th Circuit in first decision on court of appeals level, finds chapter 13 trustee not entitled to retain fees paid if case not confirmed

In the first court of appeals ruling on the issue, the 10th Circuit Court of Appeals ruled that chapter 13 trustees were not entitled to retain trustee fees in cases that were not confirmed. Goodman v. Doll (In re Doll), 2023 U.S. App. LEXIS 1073 (10th Cir., 18 January 2023). The case involved the usual situation of a debtor paying in fees before confirmation, but ultimately not getting the case confirmed. The court interpreted a number of statutes in making such determination.

28 U.S.C. 586(e)(2) provides that the standing trustee shall collect’ his fee from all payments received under chapter 13 reorganization plans for which he serves as trustee. 11 U.S.C. 1362(a)(1) provides that a chapter 13 debtor shall commence payments within 30 days of filing a chapter 13 plan. Given that such payments usually commence prior to confirmation, 11 US.C. 1362(a)(2) directs the trustee to retain these payments until the confirmation hearing. However, §1362(a)(2) also provides that if the plan is not confirmed, the trustee shall return any such preconfirmation payments to the debtor.

[a] payment made under paragraph (1)(A) shall be retained by the trustee until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b)
11 U.S.C. 1326(a)(2).

In the bankruptcy case debtor had made preconfirmation payments of $29,900, or which $19,800 was paid to debtor’s counsel for fees, and $7,500 to the Colorado Dept. of Revenue (with consent of the debtor), and retained $2,596.70 as the trustee’s fee. Debtor filed a motion to disgorge, which the bankruptcy court denied. The district court reversed, and the trustee appealed.

The court compared requirements in chapter 11 SubV and chapter 12, which statute specifically directs such trustees to collect their fee from all payments received by the trustee under such plans, but which also has provisions (11 U.S.C. §1194(a) and 11 U.S.C. §1126(a)) specifially provided for deduction of the trustee fees prior to any refund to the debtor.

The court noted the requirement to enforce the plain meaning of the statute, and found that 28 U.S.C. §586(e)(2) when ready together with 11 U.S.C. §1326(a) unambiguously require the standing chapter 13 trustee to return preconfirmation payments to the debtor without deduction for the trustee’s fee when no plan is confirmed. The trustee refereed to the chapter 13 trustee’s handbook for interpretation of the statute, which is prepared by the Executive Office of the US Trustee. This handbook indicates that the trustee may keep the fee even when a plan is not confirmed. However such handbook cannot be relied on to contradict the plain language of the statute. Further the handbook notes the possibility of controlling law in the district that would preclude collection of the fee. The trustee also cited a chapter 12 case, In re BDT Farms, 21 F.3d 1019 (10th Cir. 1994) finding 28 U.S.C. §586(e)(2) to be ambiguous as to how to compute the trustee’s fee, but the court concluded that is a separate issue from allowance of fees.

The Court affirmed the district court decision not allowing the chapter 13 trustee to retain the fee.

Michael Barnett
Michael Barnett, PA
506 N. Armenia Ave.
Tampa, FL 33609-1703
813 870-3100