UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
ARTHUR RICHARD LEWIS CASE NO. 96-10088
MEMORANDUM OPINION AND ORDER
This matter is before the Court upon the motion of Sidney N. White, Chapter 13 trustee, to reopen this case, and compel Associates Commercial Corporation (AAssociates@) to return the sum of $6,704.23 plus additional accruing interest which he believes was wrongly distributed to it. Associates has objected contending that the trustee is without standing to move to reopen the case and, if the case is reopened, asserts that it was entitled to the distributions received. For the reasons set forth herein, the Court believes that the trustee has standing to seek reopening of the case, that the case should be reopened and that the sums requested by the trustee should be recovered by him.
Arthur Richard Lewis (Adebtor@), filed this proceeding on March 6, 1996 as a Chapter 13 proceeding. Among his creditors was Associates who had financed a truck for the debtor. A confirmation hearing was held on August 7, 1996 and an order confirming the plan was entered on August 26, 1996. An Agreed Order of Secured Status was entered on that same date setting the claim of Associates at $92,747.48, plus interest and attorney=s fees and providing that the claim was fully secured. Subsequently, the debtor defaulted in his payments to the trustee and Associates moved for relief from the automatic stay. The debtor responded by moving to modify his Chapter 13 plan to provide for the surrender of Associates= collateral and treat any deficiency balance it might have as an unsecured claim. The Motion to Amend was filed with the Court on May 9, 1997. On May 14, 1997, the Court entered an Order allowing the modification.
Apparently the trustee was not made aware of the amendment to the plan allowing surrender of the collateral of Associates and continued to make payments to Associates as if Associates was still a secured creditor. The trustee made the following distributions after entry of the order amending the plan: $2,049.96 on July 1, 1997; $1,946.97 on July 31, 1997; $1,948.19 on August 31, 1997; and $15.96 on November 30, 1997. The total of these distributions is $5,961.08. The trustee requests that sum plus $743.15 in interest to the date of filing of his motion, September 2, 1998, with $1.88 per diem thereafter until paid.
Associates responds it was some time after the May 14, 1997 date, and, in fact, in June 1997, when it finally recovered the collateral. It argues that, because the debtor missed various payments to the trustee, the distributions to it should have totaled a much greater sum and it therefore should be allowed to keep the proceeds distributed to it. Associates does not address, however, the question of the equities of remaining secured creditors who would have received these funds if the funds had been properly distributed nor the fact that other secured creditors who were included in the plan were equally hurt by missed payments. At that point in the administration of the case, the secured creditors had not been paid in full and all funds, less the trustee=s commissions, were being paid to the secured creditors. Clearly, at the time of these distributions, Associates had no right to receive any of the funds they did receive since the collateral was to be liquidated by Associates and Associates was an unsecured creditor with respect to distributions from the trustee.
This case is further complicated by the fact that the plan ultimately failed and on November 12, 1997, the case was converted to a Chapter 7 case. A Chapter 7 trustee was appointed and a discharge was subsequently entered in the case. The Chapter 13 trustee, Mr. White, still not aware of the surrender of Associates= collateral, filed a final report which was approved by the Court and he was discharged from further responsibility in the case. The Chapter 13 trustee only became aware of the entry of the order approving the plan to surrender the collateral to Associates, and thus render them an unsecured creditor when the United States Trustee, in reviewing the report of the trustee, came across the discrepancy. The trustee, upon learning of the discrepancy, promptly moved to reopen the case and recover the funds involved.
Associates challenges the Chapter 13 trustee=s standing to reopen the case and recover the money in light of the conversion to Chapter 7, the closing of the case, and the approval by the Court of the distributions made by the Chapter 13 trustee.
Pursuant to 11 U.S.C. '1302(b)(1), and 11 U.S.C. '704(2), the trustee has a duty to be accountable for all property received and disposition of that property in the proceedings. This duty does not and cannot end upon conversion of the case to a Chapter 7 case because, normally, the trustee has funds in his hands and the disbursement of those funds, after he is no longer trustee in the case, is still part of the his obligations. Clearly, the trustee had an obligation to correct the distribution pursuant to 11 U.S.C. '704(2) and the only question really before the Court is his ability to do so at this point in time. A trustee is normally entitled to recover overpayments to secured creditors. In re Stevens, 187 B.R. 48 (Bankr. S.D.Ga. 1995).
Various courts have considered the matter of whether the trustee has standing to reopen the case. As counsel for Associates has pointed out, some courts have concluded that a former trustee who has been discharged has no standing to reopen the case. In the Matter of Ayoub, 72 B.R. 808 (Bankr. M.D.Fla. 1987). However, other courts which have considered the matter have concluded that at least the most recent trustee has standing to move to reopen the case. In re Stanke, 41 B.R. 379 (Bankr. W.D.Mo. 1984). In re Stewart, 154 B.R. 711 (Bankr. N.D.Ill. 1993). In re Winebrenner, 170 B.R. 878 (Bankr.E.D.Va. 1994). This Court does not believe that the fact that a Chapter 7 trustee had been appointed upon conversion to a Chapter 7 case makes any difference in this result. Where the trustee still is accountable for the payments he made, he should still have standing to seek redress for any good faith but improper distribution of the estate=s funds. Therefore, the Chapter 13 trustee has standing to seek to reopen the case.
Associates argues that, at least with respect to one of the payments, distributed on July 1, 1997, its rights in the funds were established. It argues that, since this payment was made by the debtors on May 20, 1997 and it had not received its collateral as of that date, it therefore was entitled to its prorata portion of that payment. In re Lennon, 65 B.R. 130 (Bankr. N.D.Ga. 1986). What Associates ignores is the fact that the Court had entered, on May 14, 1997, an order allowing amendment of the plan which provided for the surrender of Associates= collateral. Therefore, as of that date, Associates stood in the shoes of an unsecured creditor with respect to plan distributions.
Based on the foregoing, the Court concludes that the trustee has standing to move to reopen the case, the case should be reopened to order redistribution of the funds, and that he should recover the sum he has requested, with interest, from Associates.
It is hereby ORDERED that the Motion of the trustee to recover the sum of $6,704.23 plus interest at the per diem rate of $1.88 from and after September 2, 1998, be, and the same hereby is, SUSTAINED, and Associates Commercial Corporation be, and hereby is, directed and ordered to pay said sum to Sidney N. White, Chapter 13 trustee.
Dated this ____ day of __________________, 1998.
BY THE COURT
Elizabeth Lee Thompson, Esq.
Sidney N. White, Esq.