Supreme Court to Decide Who Gets Chapter 13 Bankruptcy Funds When You Convert From 13 to 7

In recent years there's been confusion and uncertainty over who gets undistributed Chapter 13 plan funds when a debtor converts from a Chapter 13 bankruptcy to Chapter 7 bankruptcy.

Here's the scenario: You file for Chapter 13 bankruptcy and your Chapter 13 plan is confirmed. You begin making monthly payments to the trustee who then distributes the funds to your creditors in accordance with your Chapter 13 plan. But then you convert to Chapter 7 bankruptcy. On the date of conversion your Chapter 13 trustee has money you paid through your plan that he or she has not yet distributed to your creditors.

Here's the question: Who gets those as-of-yet undistributed funds? Your creditors or you?

Here's what the appellate courts have said: The Third Circuit Court of Appeals said that you get the funds. In re Michael, 699 F.3d 305 (3rd Cir., 2012). The Fifth Circuit Court of Appeals said that your creditors get the funds. Viegelahn v. Harris No. 13-50374 (5thCir., 2014). None of the other circuit courts have ruled on this issue.

The U.S. Supreme Court will weigh in: The U.S. Supreme Court granted certiori (meaning it will hear the case) in Viegelahn. Presumably once it hears the case and issues its decision, this issue will be settled nationwide.