2012 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

10-26-2012

In Re: Barry L. Michael

Precedential or Non-Precedential: Precedential

Docket No. 11-1992

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1

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_________________

No. 11-1992

_________________

In Re: BARRY L. MICHAEL,

Debtor

CHARLES J. DEHART, III, Trustee,

Appellant

_________________

Appeal from the United States District Court

for the Middle District of Pennsylvania 

(D.C. Civil Action No. 4-10-cv-01848)

District Judge: Honorable John E. Jones, III

_________________

Argued May 7, 2012

Before: SLOVITER, AMBRO,* and ROTH, Circuit Judges

(Opinion filed: October 26, 2012)

 

* Due to the passing of the Honorable Louis H. Pollak, Judge 

Ambro was added to complete this panel. 
2

James K. Jones, Esquire (Argued)

Agatha R. McHale, Esquire

Charles J. DeHart, III, Esquire

Standing Chapter 13 Trustee Office

8125 Adams Drive, Suite A

Hummelstown, PA 17036

Counsel for Appellant

Richard J. Bedford, Esquire (Argued)

Ronda J. Winnecourt, Esquire

Office of the Chapter 13 Trustee

600 Grant Street

3250 USX Tower

Pittsburgh, PA 15219-0000

Counsel for Amicus Appellant

John J. DiBernardino, Esquire (Argued)

417 Iron Street

P.O. Box 599

Lehighton, PA 18235-0000

Counsel for Debtor-Appellee

Irv Ackelsberg, Esquire (Argued)

Langer, Grogan & Diver

1717 Arch Street

The Bell Atlantic Tower, Suite 4130

Philadelphia, PA 19103-0000

Counsel for Amicus Appellee
3

_________________

OPINION OF THE COURT

_________________

AMBRO, Circuit Judge

This appeal raises a question of first impression involving 

the interpretation of Chapter 13 of the Bankruptcy Code, 11 

U.S.C. §§ 101 et seq., in the common circumstance of a debtor 

converting his or her case from a Chapter 13 adjustment of debts 

under a reorganization plan to a Chapter 7 liquidation of assets 

and distribution to creditors.

1

 If at the time of conversion the 

Chapter 13 trustee is holding funds acquired post-petition by the 

 

1

The primary goal of a Chapter 13 case is the confirmation and 

completion of a reorganization plan, which results in the 

discharge of the Chapter 13 debtor‘s debts. See 11 U.S.C. §

1328(a) (providing for discharge ―as soon as practicable after 

completion by the debtor of all payments under the plan‖). If a 

debtor cannot confirm or complete a plan, his case most likely 

either will be converted to a Chapter 7 liquidation or dismissed. 

But see id. § 1328(b) (detailing the circumstances in which a 

debtor may receive a discharge despite not completing a plan). 

Empirical studies show that about a third of Chapter 13 debtors 

successfully confirm and complete a plan. See, e.g., Katherine 

Porter, ―The Pretend Solution: An Empirical Study of 

Bankruptcy Outcomes,‖ 90 Tex. L. Rev. 103, 107–11 (2011) 

(summarizing studies published from 1989 through 2006, all of 

which concluded that only one in three cases filed under Chapter 

13 ended in a completed reorganization plan, and noting that the 

ratio of discharge to conversion or dismissal has ―persisted for 

more than thirty years‖). 
4

debtor for eventual distribution to creditors under a confirmed 

Chapter 13 reorganization plan, must the trustee return the funds 

to the debtor or distribute them to creditors under the provisions 

of the plan? The District Court affirmed the Bankruptcy Court‘s 

holding that those funds are to be returned to the debtor at the 

time of conversion. We agree and thus affirm the District 

Court‘s decision.

I. Facts and Procedural History

Appellee Barry Michael filed a voluntary petition under 

Chapter 13 of the Bankruptcy Code in September 2005. In June 

2006, the Bankruptcy Court confirmed his Chapter 13 

reorganization plan (the ―Plan‖). The Plan provided that 

Michael would pay approximately $277 per month to the 

Chapter 13 trustee, Appellant Charles J. DeHart, III (the 

―Trustee‖), for 53 months, and the Trustee would direct the 

monies received to creditors holding secured and priority claims. 

Among these creditors was GMAC Mortgage, which held a 

mortgage on Michael‘s residence. Michael agreed also to make 

regular mortgage payments to GMAC outside of the Plan. The 

Plan further provided that, to the extent funds were available, 

creditors holding unsecured claims would be paid pro rata. To 

complete his bargain and fund the Plan, Michael allowed his 

wages to be attached and paid directly to the Trustee. 

Michael, however, was unable to make mortgage 

payments to GMAC outside of the Plan, and in August 2006 the 

Bankruptcy Court granted GMAC relief from the automatic stay 

to allow it to foreclose on Michael‘s residence. Because

Michael did not move to amend the Plan or modify the wage 

attachment order, the Trustee continued to receive automatic 

payments from Michael‘s employer. When the Trustee 
5

attempted to forward the funds to GMAC as provided by the 

Plan, GMAC refused to accept the payments(ostensibly because 

it wanted to foreclose—pun intended—an estoppel and/or 

waiver defense to its mortgage foreclosure). The funds 

continued to accumulate in the Trustee‘s account until Michael 

moved to convert his case to Chapter 7 in October 2009. 

Several days after the conversion, Michael filed a motion

seeking an order compelling the return to him by the Trustee of 

the accumulated funds, which amounted to $9,181.62. The 

Trustee objected, arguing that the funds should be distributed 

pro rata to unsecured creditors as provided by the Plan. 

Both the Bankruptcy and District Courts noted that the 

Bankruptcy Code does not provide a clear answer on whether 

undistributed plan payments held by a Chapter 13 trustee should 

be returned to the debtor or distributed to creditors under a plan

when a Chapter 13 case is converted to Chapter 7. Each court 

assessed the main arguments advanced by the parties and 

discussed by other (mainly bankruptcy) courts regarding 

statutory language, legislative intent, and the goals of the Code. 

They both concluded that the funds must be returned to Michael.

The Trustee filed a timely notice of appeal.2 

 

2

The Bankruptcy Court had jurisdiction under 28 U.S.C. §§ 157 

and 1334. The District Court had jurisdiction under 28 U.S.C. 

§§ 158(a) and 1334. We have jurisdiction under 28 U.S.C. 

§§ 158(d) and 1291. Because a district court sits as an appellate 

court to review a bankruptcy court, we review a bankruptcy 

court‘s ―legal determinations de novo, its factual findings for 

clear error, and its exercises of discretion for abuse thereof.‖ In 
6

II. Discussion 

We have a pure question of law—what does the 

Bankruptcy Code require a Chapter 13 trustee to do with 

undistributed funds received pursuant to a confirmed Chapter 13 

plan when that Chapter 13 case is converted to Chapter 7? Not 

only does the Code provide no clear answer to this question, in 

reading it one finds an internal tension, as separate provisions 

seemingly lead to divergent results. 

Both the Bankruptcy and District Courts began their 

analyses, as do we, with the Bankruptcy Reform Act of 1994‘s

amendments to the Bankruptcy Code. Included in those 

amendments was § 348(f), on which this appeal ultimately turns. 

That section provides that on conversion of a case from Chapter 

13 to another Chapter, ―property of the estate in the converted 

case shall consist of property of the estate, as of the date of filing 

of the petition, that remains in the possession of or is under the 

control of the debtor on the date of conversion.‖ 11 U.S.C. 

§ 348(f)(1)(A) (emphasis added). In the case of a bad faith 

conversion, ―the property of the estate in the converted case 

shall consist of the property of the estate as of the date of 

conversion.‖ Id. § 348(f)(2) (emphasis added).

 

re Goody’s Family Clothing Inc., 610 F.3d 812, 816 (3d Cir. 

2010). 

The Chapter 13 Standing Trustees in our Circuit filed an amicus

brief in support of the Trustee. The National Association of 

Consumer Bankruptcy Attorneys submitted an amicus brief in 

support of Michael.
7

Prior to the addition of § 348(f), courts considering the 

disposition of funds held by a Chapter 13 trustee at the time of 

conversion reached three different results: the funds were

(i) property of the new Chapter 7 estate, (ii) property of the 

debtor, or (iii) property of creditors under a confirmed Chapter 

13 plan. See, e.g., In re Boggs, 137 B.R. 408, 411 (Bankr. W.D. 

Wash. 1992) (concluding that the debtor is entitled to

undistributed funds held by the Chapter 13 trustee on conversion 

to Chapter 7); Waugh v. Saldamarco (In re Waugh), 82 B.R. 

394, 400 (Bankr. W.D. Pa. 1988) (holding that the Chapter 13 

trustee must pay out undistributed funds to the creditors as 

provided by the Chapter 13 plan on conversion); In re Tracy, 28 

B.R. 189, 190 (Bankr. D. Me. 1983) (holding that the Chapter 

13 trustee must turn over undistributed funds to the Chapter 7 

trustee on conversion). Courts of Appeals primarily debated 

whether the funds became property of the Chapter 7 estate. 

Compare Calder v. Job (In re Calder), 973 F.2d 862, 865–66 

(10th Cir. 1992) (holding that post-petition funds that were part 

of the Chapter 13 estate became property of the Chapter 7 estate 

on conversion to Chapter 7), Matter of Lybrook, 951 F.2d 136, 

138 (7th Cir. 1991) (same); and Armstrong v. Lindberg (In re 

Lindberg), 735 F.2d 1087, 1089–90 (8th Cir. 1984) (same), with

Bobroff v. Cont’l Bank (In re Bobroff), 766 F.2d 797, 803–04 

(3d Cir. 1985) (holding that a post-petition tort claim did not 

become property of the Chapter 7 estate on conversion). 

Section 348(f) removed the first result, but did not 

resolve explicitly whether the Chapter 13 trustee should give the 

funds to the debtor or distribute them to creditors under the

confirmed Chapter 13 plan. As developed below, § 348(f)‘s 

language and legislative history express Congress‘s preference 

as to what property belongs to a debtor after conversion, and 

ultimately direct our decision.
8

To understand the full import of § 348(f), we provide a 

brief overview of a Chapter 13 case. The filing of a Chapter 13 

petition creates an estate consisting of all of the debtor‘s legal 

and equitable interests in property. 11 U.S.C. §§ 301(a), 

541(a).3―[I]n addition to the property specified in section 541‖ 

that exists at the filing of the Chapter 13 petition, the estate 

includes ―all property of the kind specified in [section 541] that 

the debtor acquires after the commencement of the case but 

before the case is closed, dismissed, or converted to a case under 

chapter 7, 11, or 12 of this title, whichever occurs first . . . .‖ Id.

§ 1306(a). This includes ―earnings from services performed by 

the debtor after the commencement of the case but before the 

case is closed, dismissed, or converted . . . .‖ Id. § 1306(b). As 

is the case here, these earnings ordinarily fund the Chapter 13 

plan. See, e.g., 8 Collier on Bankruptcy ¶ 1322.01 (Alan N. 

Resnick & Henry J. Sommer eds., 16th ed. 2012) (―Chapter 13 

was designed to facilitate adjustments of the debts of individuals 

with regular income through flexible repayment plans funded 

primarily from future income.‖).

A debtor must begin making payments to the Chapter 13 

trustee ―not later than 30 days after the date of the filing of the 

plan or the order for relief [defined below], whichever is 

earlier . . . .‖ 11 U.S.C. § 1326(a)(1). The trustee must retain 

these payments ―until confirmation or denial of confirmation [of 

 

3

In pertinent part, § 301 reads: ―A voluntary case under a 

chapter of this title is commenced by the filing with the 

bankruptcy court of a petition under such chapter by an entity 

that may be a debtor under such chapter.‖ Section 541(a) 

provides that ―[t]he commencement of a case under section 301 . 

. . creates an estate.‖ 
9

a plan]. . . . If a plan is not confirmed, the trustee shall return 

any such payments not previously paid . . . to the debtor, after 

deducting any unpaid claim allowed under section 503(b).‖ Id.

§ 1326(a)(2). 

Confirmation of a reorganization plan under Chapter 13 

affects the estate, debtor, creditors, and Chapter 13 trustee. The 

confirmed plan vests all of the property of the estate in the 

debtor, id. § 1327(b); binds the debtor and its creditors, id.

§ 1327(a); and obligates the trustee to distribute the debtor‘s 

payments under the plan to creditors, id. § 1326(a)(2), (c).

4

 At 

any time during the Chapter 13 proceeding, the debtor has a near 

absolute right to convert his case. Id. § 1307(a) (―The debtor 

may convert a case under this chapter to a case under chapter 7 

of this title at any time. Any waiver of the right to convert under 

this subsection is unenforceable.‖). Regardless when 

conversion takes place, it ―does not effect a change in the date 

of the filing of the petition.‖ Id. § 348(a). 

 

4

In pertinent part, § 1326(a)(2) reads: ―If a plan is confirmed, 

the trustee shall distribute any such payment [made under 

§ 1326(a)(1)] in accordance with the plan as soon as is 

practicable.‖ Section 1326(c) similarly states: ―Except as 

otherwise provided in the plan or in the order confirming the 

plan, the trustee shall make payments to creditors under the 

plan.‖ Sections 1327(a) and (b), respectively, provide that: 

―[t]he provisions of a confirmed plan bind the debtor and each 

creditor,‖ regardless whether a creditor accepted the plan; and 

―[e]xcept as otherwise provided in the plan or the order 

confirming the plan, the confirmation of a plan vests all of the 

property of the estate in the debtor.‖ 
10

Conversion also ―terminates the services‖ of the Chapter 

13 trustee. Id. § 348(e). Though his services are ended after 

conversion, the trustee is required to account for the funds that 

came into his possession by filing a final report under Federal 

Rule of Bankruptcy Procedure 1019(5)(B)(ii). In addition, if the 

case is converted prior to confirmation of a plan, the trustee

must return any payments held by him to the debtor after 

deducting adequate funds for him to pay allowed administrative 

expense claims. See 11 U.S.C. § 1326(a)(2).

Accordingly, when a debtor converts a Chapter 13 case to

Chapter 7, the order converting the case is effectively backdated

to the time of the order for relief under Chapter 13, which is the 

date of the filing of the Chapter 13 petition. See id. § 301(b) 

(―The commencement of a voluntary case under a chapter of this 

title constitutes an order for relief under such chapter.‖). 

Section 348(f), to repeat, states that ―property of the estate in the 

converted case shall consist of property of the estate, as of the 

date of filing of the petition, that remains in the possession of or 

is under the control of the debtor as of the date of conversion.‖ 

Id. § 348(f)(1) (emphasis added). Because under § 348(a) ―the 

date of the filing of the petition‖ is the date the debtor filed the 

Chapter 13 petition, this suggests that property of the Chapter 13 

estate acquired post-petition is excluded from the property of the 

new Chapter 7 estate. But does that property belong to the 

debtor or to its creditors waiting for Chapter 13 plan payments?

It is here we turn to § 1327(b), which vests all property of 

the Chapter 13 estate in the debtor on plan confirmation. The 

implication is that property held by the Chapter 13 trustee after 

plan confirmation is ―under the control of the debtor as of the 

date of [a later] conversion‖ for purposes of § 348(f)(1). Even 

before the addition of § 348(f), the Ninth Circuit Court arrived 
11

at this conclusion regarding the vesting of monies received by 

the Chapter 13 trustee from the debtor during the Chapter 13 

proceeding. Arkison v. Plata (In re Plata), 958 F.2d 918 (9th 

Cir. 1992).

Confirmation . . . binds the creditors and the 

debtor to the provisions of the plan and vests all 

property of the estate in the debtor except as 

otherwise provided in the plan. The monies 

received by the Chapter 13 trustee from the 

debtors during the Chapter 13 proceeding became 

part of the Chapter 13 estate. The debtors‘ 

creditors acquired a nonvested interest in these 

monies by the plan and the order confirming the 

plan. A Chapter 13 creditor‘s interests do not vest 

until the monies are distributed. . . . The debtors‘

interests in the monies have not been 

extinguished.

Id. at 922 (quoting Resendez v. Lindquist, 691 F.2d 397, 399–

400 (8th Cir. 1982) (Bright, J., dissenting)). Moreover, under 

§ 348(e), after conversion the services of the Chapter 13 trustee

are terminated, which seemingly renders it powerless to make 

payments to creditors under a Chapter 13 plan. 

Nevertheless, confirmation of a plan is a significant event 

in a Chapter 13 case. This has led several courts, in decisions 

primarily written before the addition of § 348(f), to conclude 

that undistributed plan payments held by a Chapter 13 trustee 

should be disbursed to creditors after conversion. They reason 

that the funds should be treated as trust funds for the benefit of 

creditors, or that creditors held a vested interest in the funds at 

the time the trustee received them, because the debtor 
12

voluntarily parted with the funds and §§ 1326(a)(2) and (c) state

that the trustee ―shall‖ distribute payments as provided by the 

plan. See, e.g., In re Galloway, 134 B.R. 602, 603 (Bankr. W.D. 

Ky. 1991) (holding that after a debtor ―voluntarily part[s] with 

wages and deliver[s] them to the custody of a trustee in 

performance of a confirmed Chapter 13 plan, the creditors have 

a vested right to receive those payments pursuant to the plan‖); 

In re Waugh, 82 B.R. at 400 (observing that the word ―shall‖ in 

§ 1326(a)(2) ―creates the condition of a trust. Creditors have the 

right to the funds in an active confirmed chapter 13 plan on 

payment by the debtor‖); In re Rutenbeck, 78 B.R. 912, 913 

(Bankr. E.D. Wis. 1987) (―[T]he undistributed funds ought to be 

treated as trust funds for the benefit of the creditors under the 

confirmed plan and distributed to those creditors in accordance 

with the terms of the plan.‖); In re Lennon, 65 B.R. 130, 137 

(Bankr. N.D. Ga. 1986) (holding that the ―mandatory provision‖ 

of § 1326(a)(2) ―has the effect of vesting an interest in creditors 

provided for by a confirmed plan in all payments pursuant to 

such plan‖). 

These courts also emphasize that a confirmed plan binds 

creditors to a new relationship with a debtor, one that requires 

creditors to forgo certain rights in exchange for the debtor‘s 

promise to make payments under the plan. See, e.g., Ledford v. 

Burns (In re Burns), 90 B.R. 301, 304 (Bankr. S.D. Ohio 1988) 

(―[A] Chapter 13 Plan represents a legislatively sanctioned, and 

judicially approved[,] new series of rights and responsibilities 

among the debtor and the debtor‘s creditors.‖). Thus despite the 

termination of the Chapter 13 trustee‘s services after conversion,

they conclude that a ―valid confirmation order of the Bankruptcy 

Court should not be made a nullity by a later failure of the 

debtor to observe a confirmed plan.‖ Spero v. Porreco (In re 

Porreco), 426 B.R. 529, 537 (Bankr. W.D. Pa. 2010) (quoting In 
13

re Waugh, 82 B.R. at 400); see also In re Pegues, 266 B.R. 328, 

336–37 (Bankr. D. Md. 2001) (―Although the service of the 

chapter 13 trustee is terminated by Section 348(e), it is clear that 

Congress intended that the chapter 13 trustee shall wind up the 

affairs of the chapter 13 estate, including disbursing monies on 

hand to the appropriate recipient.‖); In re Burns, 90 B.R. at 304 

(―While it would be inappropriate to ignore other provisions of 

the Bankruptcy Code, it would be equally inappropriate to fail to 

judicially implement an order that the court has previously 

entered, particularly one in which the debtors voluntarily 

proposed the provisions, advocated their adoption and requested 

the court to order as binding upon the debtors and their 

creditors.‖). 

Additionally, these courts further cite § 1326(a)(2) for its 

language requiring the Chapter 13 trustee to return any payments 

held by it to the debtor if a plan is not confirmed (after 

deducting funds for it to pay allowed administrative expense 

claims). Read alone, this section arguably indicates that if a 

plan is not confirmed the trustee must return accumulated funds 

to the debtor, and that if a plan is confirmed the trustee, by 

implication stemming from the absence of similar language, is 

required to distribute accumulated fundsto creditors as provided 

by the plan. That is, if Congress intended for undistributed 

funds held by the trustee post-confirmation to be returned to a 

debtor, it could have included similar language regarding postconfirmation payments in § 1326(a)(2). See In re Burns, 90 

B.R. at 304. Moreover, holding that the funds are to be returned 

to debtors produces the anomalous result that all or a portion of 

administrative expense claims may be paid in a Chapter 13 case 

converted pre-confirmation, but not in one converted postconfirmation. 
14

In contrast, other courts, again in decisions written 

primarily before the addition of § 348(f), have read the same 

provisions of the Code and concluded that the debtor is entitled 

to undistributed plan payments held by the Chapter 13 trustee at 

the time of conversion. These courts focus on § 348(a) and the 

Congressional policy of encouraging debtorsto attempt Chapter 

13 without penalty if the attempt fails. See, e.g., In re Boggs, 

137 B.R. at 411 (―[T]he Congressional policy of encouraging 

debtors to repay their creditors via Chapter 13 is furthered by 

debtors (and their counsel) knowing they will not be penalized 

for attempting Chapter 13.‖); McCullough v. Luna (In re Luna), 

73 B.R. 999, 1003 (N.D. Ill. 1987) (concluding that § 348(a), 

―which determines the operative date for the filing of [the 

debtor‘s] Chapter 7 proceeding, protects [the debtor] from being 

penalized by providing that the Chapter 7 estate is deemed to 

have been filed at the time the Chapter 13 estate was filed‖); In 

re Bullock, 41 B.R. 637, 640 (Bankr. E.D. Pa. 1984) (―[T]he 

case is deemed to have been filed as a chapter 7 proceeding and 

that portion of the debtor‘s postpetition wages, which were 

deducted from his salary, were deposited in the chapter 7 estate 

although they were not properly includable therein . . . . Since 

the deducted wages were not part of the chapter 7 estate, the 

debtor is entitled to recover such wages in full . . . .‖).

In response to those courts holding that undistributed 

funds should be paid out to creditors, contrary rulings have 

reasoned that conversion effectively vacates the confirmed plan. 

―[Section] 1307(a) gives debtors the absolute right to convert to 

Chapter 7 at any time. Analytically, a Chapter 13 plan has no 

relevance to or import in a case under any other chapter. . . . If a 

plan is vacated or no longer in effect, a Chapter 13 trustee has 

no authority for further disbursement to creditors.‖ In re Boggs, 

137 B.R. at 410; see also In re Doyle, 11 B.R. 110, 111 (Bank. 
15

E.D. Pa. 1981) (holding that, once a case is converted, the order 

confirming the plan is no longer effective). Other decisions

simply conclude that the termination of the trustee‘s services 

―precludes the Trustee from taking any action with respect to 

these funds after the conversion.‖ In re Luna, 73 B.R. at 1002;

see also In re Perkins, 36 B.R. 618, 620 (Bank. M.D. Tenn. 

1983) (holding that the Chapter 13 trustee loses all authority to 

act when the conversion becomes effective). 

These courts also find nothing ―unjust‖ in returning 

undistributed plan payments to a debtor. Rather, they note that 

creditors ultimately will receive as much, if not more, than they 

would have received if the debtor initially had filed under

Chapter 7. 

Since § 1325(a) requires a finding that the holder 

of each allowed unsecured claim will receive not 

less than the holder would receive under Chapter 

7 to confirm a plan, it is not self-evident that the 

dilution effect of treating pre-conversion creditors 

as pre-petition creditors in the converted Chapter 

7 necessarily inflicts a net loss on actual prepetition creditors. Those creditors have had the 

benefit of distribution from debtors‘ wage 

contributions, which would not have been 

available to them under Chapter 7. In all, there 

seems no inherent inequity in refunding 

undisbursed wage contributions to debtors on 

conversion.

In re Boggs, 137 B.R. at 410.
16

Notwithstanding strong arguments regarding the binding 

effect of plan confirmation, those courts holding that 

undistributed payments under a confirmed Chapter 13 plan 

should be disbursed to creditors after conversion overlook that 

no provision in the Bankruptcy Code classifies any property, 

including post-petition wages, as belonging to creditors. Rather, 

property comes into and flows out of the estate. In the context 

of a Chapter 13 case, § 1327(b) vests all property of the Chapter 

13 estate in the debtor on confirmation of the plan. Thus when 

the debtor transfers funds to the Chapter 13 trustee to fulfill its

obligations under a confirmed plan (or, as here, wages are 

assigned directly to the Chapter 13 trustee under a garnishment 

order), the funds become part of the estate, and the debtor 

retains a vested interest in them. Though creditors have a right 

to those payments based on the confirmed plan, the debtor does 

not lose his vested interest until the trustee affirmatively 

transfers the funds to creditors. Also, §§ 1326(a)(2) and (c) only 

address the obligation of the trustee to distribute payments in 

accordance with a confirmed plan; they do not vest creditors 

with any property rights. 

Conversion to a Chapter 7 case necessarily ends the 

Chapter 13 case, which also terminates that Chapter 13 estate. 

Section 348(f) clarifies what becomes of property of the now 

nonexistent Chapter 13 estate. It provides that property of the 

Chapter 7 estate ―consist[s] of property of the estate, as of the 

date of filing of the [Chapter 7] petition, that remains in the 

possession of or is under the control of the debtor on the date of 

conversion.‖ 11 U.S.C. § 348(f)(1) (emphases added). Because 

§ 1327(b) vests all property of the Chapter 13 estate in the 

debtor, including any post-petition property held by the Chapter 

13 trustee at the time of conversion (such as funds transferred to 

the estate for eventual distribution to creditors), on conversion
17

property of the Chapter 13 estate usually is ―under the control of 

the debtor.‖

5

 And because § 348(a) establishes that conversion 

does not change the effect of the Chapter 13 petition‘s filing, the

Chapter 7 petition date is deemed to be the same date that the 

debtor began the Chapter 13 case. Hence property acquired 

post-petition that is in the Chapter 13 estate at the time of 

conversion is not property of the new Chapter 7 estate. Rather, 

the debtor retains a vested interest in the property, and thereby 

the property reverts to the debtor on conversion, assuming that

the debtor does not convert in bad faith.

6

 Moreover, absent 

 

5 Not all property necessarily will meet this requirement. For 

example, a debtor whose title to particular property isterminated 

by a divorce decree while his Chapter 13 case is pending no 

longer has control of the property when the case is converted to 

Chapter 7, and thus the property is not part of the Chapter 7 

estate after conversion even though it was included initially in 

the Chapter 13 estate. See, e.g., Yoon v. Krick (In re Krick), 373 

B.R. 593, 608 (Bankr. N.D. Ind. 2007) (holding that a parcel of 

real estate that was included in a couple‘s Chapter 13 estate at 

the time of the filing of their Chapter 13 petition, and in 

connection with marital dissolution proceedings was determined 

to be the property of the parents of the former wife debtor, was 

not property of that debtor‘s converted Chapter 7 estate because 

she did not have an interest in the real estate and thus it was not 

under her control).

6 On the issue of vesting, the Trustee draws our attention to 

§ 349(b)(3), which provides that the dismissal of a case under 

the Bankruptcy Code, including a Chapter 13 case, ―revests the 

property of the estate in the entity in which such property was 

vested immediately before the commencement of the case under 

this title.‖ None of the sub-sections of § 348 contains similar 
18

anything to the contrary (and we know of nothing), by providing 

that a debtor who converts in bad faith is not entitled to this 

post-petition property, § 348(f)(2) logically requires that a 

debtor receive the property if he acts in good faith. 

 

―revesting‖ language. As such, it may be argued that Congress 

intended to distinguish the two methods of terminating an estate 

(conversion and dismissal), and that if it meant for property of 

the estate to ―revest‖ in the debtor on conversion, it would have 

included similar language in § 348. See In re Plata, 958 F.3d at 

923 (Brunetti, J., dissenting) (distinguishing §§ 348 and 349). 

However, in the Chapter 13 context this argument overlooks that 

(i) under § 1326(a)(2) the trustee must return all payments held 

by it to the debtor if a plan is not confirmed, or (ii) under 

§ 1327(b) property of the estate already is vested in the debtor at 

the time of the conversion after confirmation of a plan. Sections 

348 and 349 are broad provisions applicable to every Chapter of 

the Bankruptcy Code. The specific provisions of Chapter 13 

supersede any distinction that may be read into these proceeding 

general provisions. 

Moreover, if a Chapter 13 debtor is concerned about obtaining 

funds held by the Chapter 13 trustee, he can dismiss his case 

rather than convert. As noted by the Ninth Circuit Court, we can

discern ―no justification for requiring a debtor to dismiss, rather 

than convert . . . [,] in order to preserve his exemption rights. 

Aside from creating a trap for the unwary, such a requirement 

would merely elevate form over substance and inject a needless 

degree of extra work on the part of all concerned.‖ In re Plata, 

958 F.2d at 922; see also In re Boggs, 137 B.R. at 410 

(―Debtors, whose motion was prompted in part by health 

problems, are willing to have their case dismissed if necessary to 

obtain the funds the Trustee holds.‖). 
19

We also believe that returning undistributed funds to the 

debtor better aligns with the Chapter 13 trustee‘s limited duties 

post-conversion and the effect of conversion on a confirmed 

Chapter 13 plan. Though the trustee must account for the funds 

that came into his possession by filing a final report after 

conversion under Federal Rule of Bankruptcy Procedure 

1019(5)(b)(ii), it does not follow that he is permitted to 

distribute funds under a plan that is no longer operative, 

particularly if those funds remain vested in the debtor until 

distribution. In light of § 348(e)‘s termination of the trustee‘s 

services post-conversion, his duties thereafter should be 

narrowly construed. If a Chapter 13 case is converted to a 

Chapter 7 case after plan confirmation, the vested funds revert 

to the debtor, and their return should be considered part of the 

Chapter 13 trustee‘s short list of remaining duties.

7

 

7

In the pre-confirmation context, the trustee is obligated to pay 

allowed administrative expenses from accumulated payments he 

is holding. Id. § 1326(a)(2). Though this creates the anomalous 

outcome that if a Chapter 13 proceeding is converted preconfirmation administrative expense claims will be paid from 

undistributed plan payments, but if the proceeding is converted 

post-confirmation no administrative expense claims can be paid 

from undistributed plan payments, this inconsistency is 

addressed by the Federal Rules of Bankruptcy Procedure. Rule 

1019(6) provides for the filing after conversion of preconversion administrative expense claims. Fed. R. Bank. P. 

1019(6) (―Upon the filing of the schedule of unpaid debts 

incurred after commencement of the case and before conversion, 

the clerk, or some other person as the court may direct, shall 

give notice to those entities listed on the schedule of the time for 

filing a request for payment of an administrative expense . . . .‖). 
20

The legislative history of § 348(f) supports that 

Congress‘s intended outcome is that payments held by the 

Chapter 13 trustee revert to the debtor on conversion. Congress 

stated that it was overruling the holdings of Matter of Lybrook

and similar cases, and ―adopting the reasoning‖ of our decision 

in Bobroff. H.R. Rep. No. 835, 103d Cong., 2d Sess. 57 (1994).

It included the following illustration of the ―serious disincentive 

to file chapter 13 filings‖ it sought to eliminate with § 348(f). 

Id.

[A] debtor who had $10,000 equity in a home at 

the beginning of the case, in a State with a 

$10,000 homestead exemption, would have to be 

counseled concerning the risk that after he or she 

paid off a $10,000 second mortgage in the chapter 

13 case, creating $10,000 in equity, there would 

be a risk that the home could be lost if the case 

were converted to chapter 7 (which can occur 

involuntarily). If all of the debtor‘s property at 

the time of conversion is property of the chapter 7 

estate, the trustee would sell the home . . . to 

realize the $10,000 in equity for the unsecured 

creditors and the debtor would lose the home.

 

In addition, if a debtor continues a Chapter 13 case until a plan 

is confirmed before converting merely to escape the trustee‘s 

payment of administrative expense claims under § 1326(a)(2), 

the debtor should be found to have converted in bad faith under 

§ 348(f)(2), and all post-petition property should be awarded to 

the Chapter 7 estate to be distributed to creditors, including 

those holding administrative expense claims.
21

Id. By analogy from this example, a debtor who contributes 

post-petition earningsto the Chapter 13 estate under a confirmed

plan when the Chapter 13 trustee has not distributed those funds 

to creditors should not lose those earnings on conversion. 

Section 348(f)(1) provides that the earnings are not property of 

the new Chapter 7 estate. The Chapter 7 trustee thus cannot 

transfer those earnings to unsecured creditors. Holding that the 

Chapter 13 trustee must disburse the earnings to creditors under 

the Chapter 13 plan after conversion would result in creditors 

receiving a portion of the Chapter 13 estate when the legislative 

history of § 348(f) suggests that this property belongs to the 

debtor.

Such an outcome also would dissuade debtors from filing 

under Chapter 13. Encouraging them to attempt to repay their 

debts through a reorganization plan rather than liquidate was the 

reasoning underlying our decision in Bobroff. We noted that

[i]f debtors must take the risk that property 

acquired during the course of an attempt at 

repayment will have to be liquidated for the 

benefit of creditors if chapter 13 proves 

unavailing, the incentive to give chapter 13 --

which must be voluntary -- a try will be greatly

diminished. Conversely, when chapter 13 does 

prove unavailing ―no reason of policy suggests 

itself why the creditors should not be put back in 

precisely the same position as they would have 

been had the debtor never sought to repay his 

debts . . . .‖

Bobroff, 766 F.2d at 803 (quoting In re Hannan, 24 B.R. 691, 

692 (Bankr. E.D.N.Y. 1982)). In this context, holding that the 
22

Chapter 13 trustee must distribute undisbursed plan payments to 

creditors would contravene Congress‘s reasoning in adopting 

§ 348(f). 

 Additionally, in adding § 348(f) Congress rejected the 

analysis of those Courts of Appeals holding that undistributed 

funds after Chapter 13 plan confirmation belong to creditors. 

Those Courts based their decisions on fairness to creditors, 

concluding that ―a rule of once in, always in[,] is necessary to 

discourage strategic, opportunistic behavior that hurts creditors . 

. . .‖ Matter of Lybrook, 951 F.2d at 137. To account for such 

―game-the-system‖ behavior, Congress included § 348(f)(2), 

which in effect ―givesthe court discretion, in a case in which the 

debtor has abused the right to convert and converted in bad 

faith, to order that all property held at the time of conversion 

shall constitute property of the estate in the converted [here, 

Chapter 7] case.‖ H.R. Rep. No. 835, 103d Cong., 2d Sess. 57 

(1994). The punishment for acting in bad faith is that property 

that otherwise would belong to the debtor goes instead to his 

Chapter 7 estate for distribution to creditors. But, as already 

noted, if a debtor does not act with bad faith in converting,

logically the property should not go automatically to creditors; 

otherwise the penalty for a bad faith conversion would be 

diminished significantly.

Indeed, since the passage of § 348(f), all Courts of

Appeals that have considered the disposition of a Chapter 13 

estate‘s property on conversion to Chapter 7 have concluded that 

the policy reasoning we expressed in Bobroff now has become 

settled law.8 See Stamm v. Morton (In re Stamm), 222 F.3d 216, 

 

8

The Trustee argues that the reasoning of Bobroff does not 

apply here because it did not involve a confirmed plan. Though 
23

217–18 (5th Cir. 2000) (noting that in Baker v. Rank (In re 

Baker), 154 F.3d 534 (5th Cir. 1998), ―[w]e stated that Congress 

added Section 348(f)  ̳to resolve the circuit split,‘ quoted the 

relevant statutory language, and noted that Congress  ̳took issue 

with In re Lybrook.‘ The clear implication . . . is that Section 

348(f)(1), where applicable, establishes that the post-petition 

income does not remain property of the estate upon conversion.‖ 

(quoting In re Baker, 154 F.3d at 536 n.2)); Young v. Key Bank

of Maine (In re Young), 66 F.3d 376, 378 (1st Cir. 1995) 

(concluding that post-petition contributions of income by the 

debtor pursuant to a confirmed plan were not property of the 

Chapter 7 estate on conversion and noting that ―[t]he 

Bankruptcy Reform Act of 1994 answered the very question that 

confronts us. It essentially codified the Bobroff rule . . .‖). See 

also Bell v. Bell (In re Bell), 225 F.3d 203, 217 (2d Cir. 2000) 

(observing that ―[i]n the Bankruptcy Reform Act of 1994, 

Congress resolved this circuit split . . . by enacting 11 U.S.C. § 

348(f)‖); 8 Collier on Bankruptcy ¶ 348.07[1] (―The addition of 

[§ 348(f)] clarified that Congress had intended the result reached 

by cases that had not included in the postconversion chapter 7 

estate the property acquired by the debtor during the 

preconversion chapter 13 case.‖). 

 

confirmation of a plan is a significant event in a Chapter 13 

case, nothing in Bobroff suggests the pre-confirmation status of 

that bankruptcy case was critical to our reasoning, nor does 

anything in the language of § 348(f) or its legislative history 

indicate Congress‘s intent that bankruptcy courts treat 

undistributed post-petition property differently depending on 

whether the Chapter 13 case was converted before or after 

confirmation of the plan. 
24

Overall, a textual reading of § 348(f), particularly in light 

of its legislative history, leads us to conclude that undistributed 

plan payments held by a Chapter 13 trustee at the time of 

conversion must be returned to the debtor absent bad faith. This 

result furthers Congress‘s preference that on conversion to 

Chapter 7 a Chapter 13 debtor receive all post-petition property 

that is held by the Chapter 13 trustee, but still is under the

control of the debtor, so that debtors are encouraged to attempt 

to repay their debts through reorganization rather than 

liquidation. 

We recognize that a practical consequence of this method 

of encouragement is that, when a debtor converts to Chapter 7 

after a Chapter 13 plan has been confirmed, the total amount of 

payments to creditors under the plan will depend on the timing 

of conversion and the practices of the Chapter 13 trustee. The 

Bankruptcy Code requires the Chapter 13 trustee to make 

disbursements ―as soon as practicable.‖ 11 U.S.C. § 1326(a)(2). 

In practice, the most efficient method of administering payments 

may be for the trustee to accumulate and distribute them to 

creditors at an established time. See, e.g., In re Hardin, 200 

B.R. 312, 313 (Bankr. E.D. Ky. 1996) (noting that ―often some 

accumulation will occur . . . prior to the making of a distribution 

to creditors‖). For example, some trustees make plan 

disbursements twice a month, while some only once a month. 

Or a trustee may be holding funds for a reason particular to a 

case, as here. Section 348(f)(2)‘s bad faith provision may 

correct for a debtor‘s opportunistic behavior, but outside a 

finding of bad faith it will not prevent a converting debtor 

receiving funds intended initially for Chapter 13 creditors. To 

deal with this potential happenstance, we foresee that creditors 
25

will request more frequent distributions from the Chapter 13 

trustee.9 

 

9 Creditors may avail themselves of other options to increase the 

likelihood that they will receive payments made by a debtor 

under a confirmed plan. 

(1) If a Chapter 13 trustee is accumulating funds because a 

creditor is refusing to receive payments under the plan, as here, 

creditors can move to modify the plan. See 11 U.S.C. 

§ 1329(a)(1) (―At any time after confirmation of the plan but 

before the completion of payments under such plan, the plan 

may be modified, upon request of the . . . holder of an allowed 

unsecured claim, to . . . increase or reduce the amount of 

payments on claims of a particular class provided for by the 

plan.‖). 

(2) Creditors can move to compel the trustee to make 

distributions under the plan immediately after the debtor files its 

motion to convert. 

(3) Section 1327(b) provides that ―[e]xcept as otherwise 

provided in the plan or the order confirming the plan, the 

confirmation of a plan vests all of the property of the estate in 

the debtor.‖ 

Creditors can object to a proposed plan that does not provide 

that plan payments vest in creditors immediately on receipt by 

the Chapter 13 trustee. They likewise can request that similar 

language be included in the Bankruptcy Court‘s order 

confirming the plan. Though we do not rule on the issue, such 

language may be sufficient to remove undistributed plan 

payments held by the trustee from property ―under the control of 

the debtor on the date of conversion.‖ 11 U.S.C. § 348(f)(1). 
26

* * * * *

As applied here, when the Plan was no longer feasible, Michael 

exercised the right to convert his case to Chapter 7 and sought

the return of his post-petition earnings still in the Trustee‘s 

possession. Because there is no evidence that he converted in 

bad faith, those funds are his property by virtue of § 348(f), and 

should not be distributed to his creditors. The Bankruptcy and 

District Courts‘ decisions reflect the result that Congress 

contemplated in enacting § 348(f). We thus affirm. 
1

In re: Barry L. Michael

No. 11-1992

ROTH, Circuit Judge, Dissenting:

Barry Michael converted his bankruptcy from Chapter 

13 to Chapter 7. The question we must answer is whether 

Michael’s undistributed post-confirmation, but preconversion, wages, which were paid to the Chapter 13 trustee 

pursuant to the confirmed reorganization plan, should be 

distributed to his creditors pursuant to the plan or returned to 

Michael. The Majority concludes that the addition of 11 

U.S.C. § 348(f) to the Bankruptcy Code mandates that the

funds revert to Michael. I respectfully disagree. The 

language of § 348(f) does not require such a result.

I turn first to the context in which this situation is most 

likely to occur. When a Chapter 13 plan of reorganization 

has been confirmed, the debtor will make regular payments to 

the Chapter 13 trustee. In many cases, the funds come from a 

wage attachment as happened here. At regular intervals --

monthly, bi-monthly -- the trustee, pursuant to § 1326(c), 

shall pay out the funds to the creditors as provided for in the 

confirmed plan. The trustee is the conduit for the funds to get 

to the creditors. Thus, the funds held by the trustee prior to 

these pay-outs do not build up significantly. If, ultimately,

the debtor cannot keep up with the provisions of the plan and 

decides to convert to Chapter 7, the accumulated funds in the 

hands of the trustee are not of a sizeable amount. Thus, there 

has been little reason to dispute their disposition.
2

The reason for the accumulation of the funds here was 

because GMAC Mortgage refused to accept the payments 

pursuant to the plan after August 15, 2006, and sent the 

checks back to the trustee. Michael had been unable to keep 

up his own regular payments on the mortgage; as a result, on 

August 15, GMAC Mortgage obtained relief from the 

automatic stay in order to foreclose. Michael’s wage 

attachment, however, continued on until October 2009 when 

he converted his bankruptcy to a Chapter 7. Although the 

plan provided for distribution to other secured and unsecured 

creditors, the trustee did not make payments to them. For that 

reason, more than $9,000 accumulated in the hands of the 

trustee. During this three year period, either Michael or the 

trustee could have requested an amendment to the plan. 

Neither did so. Michael continued to make payments for the 

benefit of his creditors. He also continued to enjoy the 

benefits of a Chapter 13 plan.

1

 

There is little precedent to assist us in resolving this 

situation. There is evidence, however, that at least within the 

Third Circuit, the custom has been that, when a debtor 

converted a Chapter 13 bankruptcy to a Chapter 7, the 

Chapter 13 trustee paid out the accumulated funds to the 

creditors as provided for in the plan. In fact, in December 

2011, the Third Circuit Judicial Council approved the 

Western District of Pennsylvania Local Bankruptcy Rule

 

1Generally, the benefits available to a debtor under a 

Chapter 13 plan of reorganization are the saving of a 

residence from foreclosure, the curing a mortgage 

delinquency over time with more affordable payments, the 

maintaining of possession and use of an automobile or other 

personal property, and the automatic stay.
3

3021-1(f), which provides that “[i]n the event of conversion 

or dismissal following the confirmation of a chapter 13 plan, 

then the chapter 13 trustee shall distribute all funds received 

prior to the effective date of the conversion or dismissal, in 

accordance with the terms of the confirmed plan.” The Clerk 

of the Bankruptcy Court for the Western District of 

Pennsylvania believes that this rule codified a long time 

practice, going back to 2004. This rule -- or practice -- has

not been challenged until, in this case, the sum held by the 

trustee became a sizeable one. The issue then is: Who gets 

the benefit of this windfall, the debtor or the creditors? 

To answer this question, we must determine whether 

these funds -- on conduit through the trustee to the creditors 

in accord with the confirmed plan -- are property of the 

Chapter 13 estate. 

As the Majority observes, prior to the Bankruptcy 

Reform Act of 1994 (Act), courts were sharply divided on 

whether post-petition and post-confirmation property, which 

was acquired by the debtor during a Chapter 13 case,

remained property of the bankruptcy estate or was returned to 

the debtor upon the estate’s conversion to Chapter 7. 

Compare Resendez v. Lindquist, 691 F.2d 397, 399 (8th Cir. 

1982) with Bobroff v. Cont’l Bank (In re Bobroff), 766 F.2d 

797, 803 (3d Cir. 1985). The Act sought to resolve this 

dispute with the amendment to § 348, which provided that 

“when a case under chapter 13 . . . is converted to a case 

under another chapter,” 11 U.S.C. § 348(f)(1), the “property 

of the estate in the converted case shall consist of property of 

the estate, as of the date of filing of the petition, that remains 

in the possession of or is under the control of the debtor on 

the date of conversion,” id. at § 348(f)(1)(A).
4

I agree that the amendment described what became of 

property or rights to property acquired by the debtor during 

the pendency of the Chapter 13 proceedings. I have no 

argument against this interpretation. Mr. Bobroff2keeps his

potential tort recovery and Mr. Lybrook3keeps the farm land 

inherited from his father because the tort recovery and the 

farmland inheritance were not property of the estate as of the 

date of the filing of the petition.

4

To the extent that Michael’s 

wages were not attached, the amendment also covered these 

unattached wages earned during the course of the Chapter 13 

bankruptcy. On conversion, these wages would not be 

transferred to the Chapter 7 estate. See Stamm v. Morton (In 

re Stamm), 222 F.3d 216, 217 (5th Cir. 2000) (“Section 

348(f)(1), where applicable, establishes that the [debtors’] 

post-petition income does not remain property of the estate 

upon conversion”). There is simply no language that suggests 

otherwise. See e.g., In re Pegues, 266 B.R. 328, 331-32 

(Bankr. D. Md. 2001); In re Bell, 248 B.R. 236, 239 (Bankr. 

W.D.N.Y. 2000); In re Hardin, 200 B.R. 312, 313 (Bankr. 

E.D. Ky. 1996). 

However, we are not dealing simply with wages here 

but with that portion of the wages that had been attached 

 

2

Bobroff, 766 F.2d at 803.

3Matter of Lybrook, 951 F.2d 136 (7th Cir. 1991).

4

I would note, however, that neither the Bobroff nor 

the Lybrook Chapter 13 plans were confirmed. A confirmed 

plan would have dealt with these property expectations during 

the period of reorganization. It would appear that the 

consideration of these additional assets may be a factor in the 

failure of approval of a plan of reorganization.
5

under the plan and paid to the trustee for distribution to the 

creditors. I maintain that there is a crucial difference. It is 

my position that, although the debtor’s unattached wages 

earned during the reorganization period will not be included 

in the Chapter 7 estate, the attached wages that have been 

paid to the trustee pursuant to the plan should be. Under the 

plan, these wages are under the supervision and control of the 

trustee.5 Because these funds are under the supervision and 

control of the trustee, they should be paid out by the trustee in 

accord with the provisions of the plan. Moreover, the 

attached wages are the quid pro quo that the debtor has given 

up during the pendency of the reorganization in return for 

being permitted to stave off foreclosure and cure the 

mortgage default, retain the use of his automobile, and enjoy 

the automatic stay. 

The Majority depends on Bobroff to support its 

decision. However, a careful analysis of Bobroff reveals that 

the Court’s decision was motivated by its fear of potential 

inequities that might result when the recovery from a debtor’s 

post-petition litigation was included in a converted Chapter 7 

estate. Central to the Court’s decision was the notion that 

creditors should not receive a windfall from funds that would 

not have been in the bankruptcy estate if the initial filing had 

been for a Chapter 7 proceeding. According to the Court, 

such a result would be inconsistent with the Bankruptcy 

 

5

The plan provides in paragraph 1 that “[t]he future 

earnings of the Debtor are submitted to the supervision and 

control of the trustee – Debtor’s employer shall pay to the 

Trustee the sum of $138.62 bi-weekly, beginning in May, 

2006 for a period of 53 months, plus $1,294.67 paid as of 

April 4, 2006.” 
6

Code’s goal of encouraging debt repayment. See Bobroff, 

766 F.2d at 803. If a debtor had to risk losing either all or a 

portion of the property he acquired during his repayment 

attempt, the incentive to try voluntary repayment would be 

substantially diminished. Id. The Court, therefore, opined 

that post-petition funds should revert to the debtor in order to 

ensure that both the creditors and debtor would be returned to 

“precisely the same position they were in had the debtor 

never sought to repay his debts . . ..” Id.

6

 

The concerns the Court expressed in In re Bobroff, 

however, are not present in Chapter 13 proceedings where a 

debtor derives a benefit from the confirmed bankruptcy plan. 

Once a reorganization plan is confirmed, the relationship 

between the debtors and creditors change; the provisions of 

the plan bind the parties, generating benefits and 

corresponding responsibilities. 11 U.S.C. § 1327(a); see

Ledford v. Burns (Matter of Burns), 90 B.R. 301, 304 (Bankr. 

S.D. Ohio 1988) (“[A] Chapter 13 Plan represents a 

legislatively sanctioned, and judicially approved new series of 

rights and responsibilities among the debtor and the debtor’s 

creditors”). In fact, under a confirmed plan, each party 

receives a benefit. The debtor is entitled to continue 

“receiving whatever benefits []he believed were significant 

enough for [him] to have converted to and proceeded in 

 

6Of course, Bobroff is also distinguishable from this 

case in the fact that the Court in Bobroff held that because the 

debtor was not eligible for Chapter 13, “the conversion to that 

chapter was void ab initio and the provisions of § 1306 

cannot be invoked to determine which property comprises the 

estate.” Bobroff, 706 F.3d at 803.
7

Chapter 13,”7In re Bell, 248 B.R.at 239, and the creditors 

receive the money paid into the Chapter 13 estate, In re 

Pegues, 266 B.R. at 336. Thus, the debtor makes payments in 

order to fulfill his obligations under the reorganization plan

and in exchange for the benefits he derives from the plan.

8

 In 

 

7Although varied, the benefits a debtor receives may 

include: saving a residence from foreclosure, curing a 

mortgage delinquency over time with more affordable 

payments, maintaining possession over an automobile or 

other personal property, or having the benefit of the automatic 

bankruptcy stay remain in place for an extended period of 

time.

8Conversion does not retroactively alter this 

arrangement and undo the benefits the debtor received from 

the plan. See e.g., In re Pegues, 266 B.R. at 336; In re 

Galloway, 134 B.R. 602, 603 (Bankr. W.D. Ky. 1991); 

Waugh v. Saldamarco, (In re Waugh), 82 B.R. 394, 398-99 

(W.D. Pa. 1988); In re Redick, 81 B.R. 881, 887 (E.D. Mich. 

1987). The funds the debtor paid were in exchange for the 

benefits of the reorganization plan. Revocation of the plan 

only alters this dichotomy going forward; it does not 

“retroactively revoke the intent,” In re Bell, 248 B.R. at 239, 

that debtors had when they initially chose to file under 

Chapter 13; nor does it retroactively alter the fact that a 

debtor made payments “to continue to enjoy the ongoing 

benefits of that plan,” id at 240. 

The Bankruptcy Code supports this view. Sections 

1326(a)(2) & (c) affirmatively set forth the Chapter 13 

trustee’s obligation to distribute a debtor’s payments to 

creditors pursuant to the terms of the confirmed plan. See 11 

U.S.C. § 1326(a)(2) & (c). Although § 348(e) terminates the 
8

re Bell, 248 B.R. at 239; see In re Lennon, 65 B.R. 130, 136

(N.D. Ga. 1986) (“These payments are specifically earmarked 

and set aside for distribution to creditors provided for by the 

confirmed plan”). 

Here, unlike in Bobroff, the payments Michael made 

were in exchange for the benefits he derived from the plan. 

Therefore, if the undistributed funds revert to him, instead of 

being distributed to the creditors in accordance with the

plan’s terms, Michael would receive a windfall. See O’Quinn 

v. Brewer (In re O’ Quinn), 143 B.R. 408, 413 (Bankr. S.D. 

Miss. 1992) (“It appears to this Court to be patently unfair to 

allow a debtor to drive and depreciate an automobile, occupy 

a home or use household goods based on a promise to his 

creditors in the form of a court approved plan, and then allow 

the debtor to snatch away the monies which the trustee is 

holding to make the payments, but has not yet disbursed, by 

allowing the debtor to pick an opportune time to convert”). 

He would obtain the benefits the confirmed plan offered 

 

services of the trustee when a case is converted to chapter 7, 

the trustee is still required to perform certain tasks. See Fed.

R. Bankr. P. 1019. Federal Rule of Bankruptcy Procedure 

1019 details several of these post-conversion duties. See e.g., 

id. at 1019(4), 1019(5)(B)(ii). Thus, the Rule demonstrates 

that Congress did not intend § 348(e) to be interpreted too 

literally. Since Congress intended for the trustee to perform 

several ancillary duties to clean-up and finalize the 

administration of the estate, In re Parrish, 275 B.R. 424, 430 

and & n.7 (Bankr. D. Colo. 2002), there is no logical reason 

why distribution of funds pursuant to the previously 

confirmed reorganization plan cannot be included as one of 

those administrative duties.
9

without having to pay his creditors. Such a result would not 

only be patently unfair, but also contradict the reasoning of 

Bobroff.

9

 Michael would be in a better position (and his 

creditors in a worse position) than he would have been if he

had initially filed for bankruptcy under Chapter 7.

Therefore, my interpretation of § 348(f) will not 

discourage voluntary debt repayment under Chapter 13. It 

merely requires debtors to honor their obligations to creditors 

as was agreed under the confirmed plan. In re Bell, 248 B.R. 

at 240. I hope that we will not see the reversal of a Third 

Circuit practice that over the years has balanced the benefits 

to both parties under a plan of reorganization by providing 

that the undistributed funds held by the trustee will be 

distributed to the creditors pursuant to the confirmed plan. If 

we adopt the Majority’s position, we will be permitting a 

windfall in this unusual case where inaction by the debtor and 

by the trustee has permitted funds to accumulate in a situation 

in which that normally would not occur. 

For the above reasons, I respectfully dissent.

 

9Although the Majority does not explicitly state, it 

implies that § 348(f)’s bad faith provision, see 11 U.S.C. § 

348(f)(2), would prevent this type of harm from befalling 

creditors. This argument is unconvincing. One can conjure 

many scenarios where a debtor files for Chapter 13 

bankruptcy, with bona fide intentions of repaying his 

financial obligations, only to discover that he miscalculated 

his ability to repay his creditors. This type of conduct cannot 

be characterized as “game-the-system” behavior.