In re: Michael C. James

After his chapter 13 case was dismissed without a plan being confirmed, the debtor moved to compel the trustee to release funds he was holding in payment to the debtor’s attorney, alleging that section 1326(a)(2) of the Bankruptcy Code mandates the disbursement of those funds. The issue addressed by the Court was whether a third-party citation to discover assets, which was served upon the trustee by creditor Brendan Financial, Inc. and which initiated supplementary proceedings in the Circuit Court of Cook County, trumps the release of funds to the debtor’s attorney. The Court found that Brendan Financial violated the Barton doctrine by initiating supplementary proceedings in the state court without obtaining leave of the Bankruptcy Court. The Court also concluded that section 1326(a)(2) governs the matter and that the plain language of that statute mandates the disbursement of funds to the debtor’s attorney. Accordingly, the Court granted the debtor’s motion and directed the trustee to release funds to the debtor’s attorney in accordance with the Court’s order which granted the attorney’s application for compensation.

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Thursday, April 18, 2013