Harris v. Viegelahn

**Question presented** When a debtor who started a Chapter 13 bankruptcy (where his future wages are collected by a trustee and used to pay creditors) decides to convert the case to Chapter 7 (the “liquidation” bankruptcy), who gets the wages that the Chapter 13 trustee has already taken out of the debtor’s paycheck but has not yet paid out? Do those withheld wages belong to the new Chapter 7 estate, or must they be returned to the debtor? **Holding** The Supreme Court held that, in a good‑faith conversion from Chapter 13 to Chapter 7, the debtor is entitled to get back any of his post‑petition wages that the Chapter 13 trustee has not yet distributed. Those wages do **not** become part of the Chapter 7 estate. **Core reasoning in plain language** 1. **What the statutes say** – The Bankruptcy Code says that the property of a Chapter 7 estate is limited to what the debtor owned at the time he filed for bankruptcy. His wages earned after filing are **not** estate property in Chapter 7. (Section 348(f) of the Code). 2. **What happens on conversion** – When a debtor converts to Chapter 7, the Chapter 13 trustee’s job ends automatically (Section 348(e)). The trustee’s duties, such as paying creditors according to the Chapter 13 plan, stop at the moment of conversion. 3. **Why the wages can’t go to creditors** – Because those post‑petition wages are not part of the Chapter 7 estate, they cannot be liquidated and given to creditors. Allowing the former Chapter 13 trustee to keep sending the same money to creditors would contradict the statute’s design, which intends to keep post‑filing earnings out of the Chapter 7 pool. 4. **No other rule saves the trustee’s claim** – The provisions that bind the debtor and creditors to a confirmed Chapter 13 plan (Sections 1327(a) and 1326(a)(2)) cease to apply once the case is converted. There is no rule in the Federal Rules of Bankruptcy Procedure that gives the terminated trustee authority to continue distributing those funds. 5. **Result** – The debtor gets the undistributed wages back; if the trustee has already handed some of the money to creditors, those funds stay with the creditors, but any remaining balance must be returned to the debtor. **Vote** The decision was unanimous: all nine Justices joined the opinion written by Justice Ginsburg. No dissent was filed.