Conversion from a Chapter 13 to Chapter 7 bankruptcy is one of the most essential tools in a debtor's arsenal. However, over the past several decades, courts have clashed when applying the Bankruptcy Code to certain situations arising from such a conversion. Although Congress addressed one such disagreement in the Bankruptcy Reform Act of 1994, another hotly debated issue remained over whether debtors or creditors should receive undistributed funds held by Chapter 13 trustees upon conversion to a Chapter 7 bankruptcy. The issue led to a circuit split in 2014 when the Fifth Circuit, in In re Harris, ruled in favor of creditors, which contrasted with the Third Circuit's previous ruling in favor of debtors in In re Michael.
This Comment argues that Congress never intended for either debtors or creditors to have an absolute right to such undistributed funds upon conversion, which is supported through analyses of the Bankruptcy Code, legislative history, and policy. Rather, Congress intended the parties to negotiate for a term that would resolve the potential issue in their Chapter 13 bankruptcy repayment plan. The Comment proposes that Congress or the Supreme Court should clarify the matter by explicitly requiring the parties to provide such a provision in the plan.
Robert J. Taylor,
Negotiating Between Harris and Michael: Who is Entitled to Undistributed Payments upon a Chapter 13 to Chapter 7 Bankruptcy Conversion?,
Dick. L. Rev.
Available at: https://ideas.dickinsonlaw.psu.edu/dlra/vol120/iss2/8