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Charles J. Dehart, Iii v. Barry L. Michael

April 4, 2011

CHARLES J. DEHART, III,
TRUSTEE, APPELLANT,
v.
BARRY L. MICHAEL, APPELLEE.



The opinion of the court was delivered by: Hon. John E. Jones III

Chapter 13

MEMORANDUM

THE BACKGROUND OF THIS MEMORANDUM IS AS FOLLOWS:

Appellant Charles J. DeHart, III, Chapter 13 Trustee ("the Trustee") appeals a July 23, 2010 Opinion (the "Opinion") issued by the Honorable Mary D. France of the United States Bankruptcy Court for the Middle District of Pennsylvania.*fn1 In the Opinion, the Bankruptcy Court held that the undistributed funds held by the Trustee following a conversion of the case to chapter 7 are property of the debtor Barry L. Michael ("Debtor"). Accordingly, the Bankruptcy Court granted Debtor's motion to compel the Trustee to turn over the undistributed funds. The Trustee filed a timely appeal on September 2, 2010 (Doc. 1). The appeal has been fully briefed by the parties and is therefore ripe for disposition. For the reasons that follow, we will affirm the Opinion of the Bankruptcy Court.

I. JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a). We review the Bankruptcy Court's factual findings for clear error and exercise plenary review over legal determinations. See In re Udell, 454 F.3d 180, 183 (3d Cir. 2006) (citing In re Woskob, 305 F.3d 177, 181 (3d Cir. 2002)). Because the factual background of this case is not in dispute, we shall confine our analysis to the legal issues presented on appeal and adopt the Bankruptcy Court's recitation of the facts in Section II, infra.

II. FACTUAL AND PROCEDURAL BACKGROUND

On September 10, 2005, Debtor filed a petition under chapter 13 of the Bankruptcy Code. His plan of reorganization, confirmed on June 7, 2006, called for him to pay approximately $277 per month to the Trustee for a period of fifty-three months, to be distributed to certain creditors holding secured and priority claims. After the payment of administrative expenses, Debtor proposed that all distributions under the plan be made to three creditors: GMAC Mortgage ("GMAC"), which held the mortgage on Debtor's residence; Citifinancial, which held a lien on the title to Debtor's vehicle; and the Line Mountain School District, which held a priority claim for taxes. The plan contained the following provision:

Debtor believes that no funds will be available for [unsecured] claimants. However, to the extent funds become available, said claims including the claim of Pennsylvania Housing and Finance Agency and Citifinancial for the third mortgage, as well as the unsecured portion of the vehicle loan, [are] to be paid pro-rata.

On April 7, 2006, an Order was entered granting Debtor's motion to allow his wages to be attached and paid directly to the Trustee to fund his plan.

On August 15, 2006, GMAC obtained an Order granting it relief from the automatic stay. Although GMAC was now free to foreclose on Debtor's home, Debtor did not attempt to amend his plan or terminate the wage attachment order. Accordingly, the Trustee continued to receive automatic payments of $277 per month from Debtor's employer and to forward distributions from the plan to GMAC. GMAC, however, refused to accept the funds which then accumulated in the Trustee's account until debtor converted his case to chapter 7 on October 26, 2009.

On October 29, 2010, Debtor filed a motion seeking an order compelling the Trustee to turn over to him the accumulated funds totaling $9,181.62. The Trustee objected to the motion on the grounds that the funds were paid under the terms of the chapter 13 plan and were being held in trust for the benefit of unsecured creditors. If the Trustee's objection were sustained, the balance would be distributed pro rata to the holders of allowed unsecured claims according to the terms of the confirmed plan.

If the funds are determined to be property of Debtor, they will be distributed to Debtor's counsel in payment of attorney's fees. On July 23, 2010, the Bankruptcy Court issued an Opinion concluding that the undistributed funds held by ...


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