Bankruptcy-Trustee’s Fee

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7^th Circuit Court of Appeals

Case Name: Marilyn Marshall v. Edward Johnson

Case No.: 23-2212

Officials: Sykes, Chief Judge, and Easterbrook and Kirsch, Circuit Judges.

Focus: Bankruptcy-Trustee’s Fee

Johnson sought bankruptcy relief under Chapter 13, adhering to a proposed repayment plan by making payments to bankruptcy trustee Marilyn O. Marshall. However, the bankruptcy court never ratified his plan due to unresolved issues with a loan and domestic support obligations, eventually dismissing his case for undue delay. Prior to refunding Johnson’s undispersed payments, the trustee deducted a percentage fee as compensation. Johnson motioned for the trustee to disgorge her fee, a request the bankruptcy court granted, arguing that the trustee lacked statutory authority to deduct the fee since Johnson’s plan wasn’t confirmed. Subsequently, the trustee appealed this decision.

The Seventh Circuit conducted a de novo review of the case. After scrutinizing the statutory text, the court sided with the Ninth and Tenth Circuits, affirming that the United States Bankruptcy Code necessitates the Chapter 13 trustee to reimburse her fee when the debtor’s plan remains unconfirmed. The court determined that neither of the exceptions outlined in § 1326(a)(2) of the Bankruptcy Code were applicable to the trustee’s fee. Furthermore, the court dismissed the trustee’s contention that § 1326(b) permitted her to retain her fee when disbursing pre-confirmation adequate protection payments to creditors, clarifying that this provision solely pertains to payments made post-confirmation of a plan. Additionally, the court established that the trustee had no entitlement to retain her fee under 28 U.S.C. § 586(e)(2), which solely addresses the origin of funds accessible for paying standing trustee fees.

The court ruled that the Chapter 13 trustee must refund her fee when the debtor’s plan remains unconfirmed.

Affirmed.

Decided 05/03/24

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