The U.S. Supreme Court has resolved a circuit split by answering the question; what happens to post-petition wages held by a Chapter 13 trustee at the time a case is converted from Chapter 13 to a Chapter 7? In a unanimous ruling, the Court held that upon conversion of a case, the Chapter 13 trustee is required to return to the Debtor any post-petition wages not yet distributed.In Harris v. Viegelahn , No. 14-400, 2015 WL 2340847 (U.S. May 18, 2015), the Debtor filed a Chapter 13 plan wherein he was required to pay the Chapter 13 trustee $530 per month from his post-petition wages. The trustee was then to distribute the funds amongst the creditors of the estate. Eventually, the Debtor fell behind on his plan payments and converted the case to a Chapter 7. At the time of conversion, the trustee had accumulated $5,519.22 in plan payments. Following conversion of the case, the Trustee distributed the remaining funds to the creditors of the estate and the Debtor objected. The Court found the Bankruptcy Code limits the converted Chapter 7 estate to property belonging to the debtor as of the date the debtor files the original Chapter 13 petition.
This decision highlights the difference in how Chapter 13 and Chapter 7 debt is discharged, as post-petition earnings are off-limits to creditors in a Chapter 7 case. Creditors should be aware that debtors have a non-waivable right to convert a Chapter 13 case to one under Chapter 7 at any time under the Bankruptcy Code. Under Harris, when a debtor converts a Chapter 13 case to Chapter 7, the trustee’s duty to make payments in accordance with the court-approved Chapter 13 plan ceases to apply.