Harris v. Viegelahn (14-400)

argument 14-400

Harris v. Viegelahn

Supreme Court of the United States 59 min 4 speakers 8 chapters transcribed 4 days ago official recording ↗

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What is the legal significance of converting a Chapter 13 case to Chapter 7?

John G. Roberts 0:00

We'll hear argument first this morning in case 14-400, Charles Harris v. Mary Vigilon, the Chapter 13 trustee. Mr. Madden?

Unknown 0:10

Mr. Chief Justice, and may it please the Court, bankruptcy cases can proceed under only one chapter of the Bankruptcy Code at a time. There are three main reasons why, when Petitioner converted his case from Chapter 13 to Chapter 7, Respondent was required to return post-petition wages she held as Chapter 13 trustee. First- Not just wages, right? I mean, you constantly refer to it as post-petition wages. Anything that went into the pot that was still there. That's right. I mean, it would be, you know, lease payments or anything else, right? Yes, Your Honor. Any post-petition property, including wages. Now, in the general Chapter 13 case, post-petition property held by the Chapter 13 trustee are wages. But because Section 348F of the Code speaks to what remains property of the estate in the converted case,

Unknown 0:58

That section requires that those wages or any other property remain property of the estate only if the case was converted in bad faith. If the case is converted in good faith, as here, the petitioner gets to keep that property. And second, the Code requires that when a case is converted from Chapter 13 to — Excuse me. It really doesn't say what happens to it, does it? It just says what becomes the estate of the Chapter 17. bankruptcy. MR. That's right. It leaves up in the air what happens to the material that is not described in that provision, right? MR. I think the statute doesn't explicitly say what happens to that material, but what it does say is — MR. So why would it go back to the debtor automatically?

Unknown 1:45

Because there's only one estate in a bankruptcy case that's created at the commencement of the case. And so when Congress decided what will remain in that estate after conversion and made that decision turn on whether the debtor has acted in good faith or bad faith, Congress has said what should happen in the case going forward. So by creating a penalty for debtors who have converted their case in bad faith, Congress has said that debtors should retain the funds if they have converted the case in good faith. Moreover, what happens in bad faith? In bad faith, under Section 348F2 of the Code, if the debtor has converted his case to Chapter 7 in bad faith, all of the post-petition property remains property of the estate.

Unknown 2:24

Effectively, yes. And it seems to me that that is a statutory argument that cuts against your position because the Code makes this distinction. Well, no, respectfully, I disagree, Your Honor. I think the Code cuts in our favor because Because of this distinction, Congress has decided that it's only when a debtor converts this case in bad faith that this property should remain property of the estate available to creditors in the case. What does that mean? Chapter 13 is over. Chapter 7 is underway. Remains in a nonexistent estate. There's no more Chapter 13. It goes to the creditors, right? Not quite, Your Honor. It remains in the estate because a new Chapter 7 trustee takes over as the representative of the estate under the Code.

Unknown 3:11

And so it becomes the Chapter 7 trustee's responsibility to administer that estate and make disbursements to creditors according to the Code. Now here — Incidentally, I must say, you are correct. I think this does cut, in your favor, the idea that a bad faith conversion means that the estate is the current estate. I think that code distinction does cut in front of your favor. Right. And I think that's what Congress intended when they enacted Section 34.

Stephen G. Breyer 3:42

What they say specifically is the property of the estate, and that's the property we're talking about, the property of the 13 estate, right, because it's the property of the 13 estate that goes into 7 at the moment the petition is filed to convert it. That's right. It says which property of the 13 estate that remains in the possession or is under the control of the debtor? Is this money, which is in the trustee, in the possession of the debtor? No. Is it under the control of the debtor?