U.S. Supreme Court Hears Consumer Bankruptcy Cases

During the most recent term, the U.S. Supreme Court heard multiple consumer bankruptcy cases that deal with bankruptcy and reorganization. The two most recent cases, Bullard v. Blue Hills Bank and Harris v. Viegelahn, concern Chapter 13 bankruptcy procedural issues.
Current Personal Bankruptcy Cases Being Heard
In Bullard, the Supreme Court will be deciding a procedural problem. In short, the primary issue in the case is whether a debtor who files for Chapter 13 bankruptcy can “appeal a bankruptcy court order that denies confirmation of a plan,” according to a recent post on ScotusBlog.com. In the second case, Harris, the Court must decide the disposition of undistributed funds in cases where the “debtor in good faith converts a bankruptcy case to Chapter 7 after confirmation of a Chapter 13 plan.”
How will the decisions affect consumers in the Chicago area? We’ll have to wait and see how the Supreme Court decides. In the meantime, we’ll look at one of those recent cases in depth.
Learning More About Harris
What facts do consumers need to know about the Harris case? In short, the facts begin back in 2010 when the plaintiff, Charles Harris, filed for Chapter 13 bankruptcy. Under the approved reorganization plan, the plaintiff was required to make 60 months’ worth of monthly payments to a bankruptcy trustee—the defendant in this case—as well as to his mortgage lender, Chase. Once the plaintiff’s mortgage debts and debt to his secured creditors were paid in full, his payments would go toward paying off his unsecured creditors.
The defendant ended up moving out of his house shortly after he began making payments under the Chapter 13 plan, at which point he converted his personal bankruptcy to a Chapter 7. Once the defendant converted to Chapter 7, the bankruptcy trustee used the money from the plaintiff’s payments to pay some of his creditors. According to the case as it’s described on Oyez.org, the plaintiff “sued for that money and argued that [the trustee] had no authority to disburse funds after conversion of the case.”
The bankruptcy court and district court both found in favor of the plaintiff, ordering the return of his funds. The Fifth Circuit reversed, however, ruling that “the undistributed payments that the Chapter 13 trustee holds at the time of the case’s conversion to Chapter 7 must be distributed to creditors pursuant to the Chapter 13 plan.” Now that the Supreme Court is hearing the case, the question comes down to how undistributed funds held by a Chapter 13 bankruptcy trustee should be used when the debtor converts to Chapter 7:
  • Should the funds be returned to the debtor; or
  • Should the funds be distributed to the creditors?
Depending on how the Supreme Court decides, the decision could have significant implications for Illinoisans who are considering Chapter 13 bankruptcy.
If you have questions or concerns about filing for personal bankruptcy, you should always talk with an experienced Oak Park bankruptcy attorney about your situation. Bankruptcy law can be extremely complicated, and it’s important to have an advocate on your side.
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