The Virginia Department of Social Services, Division of Child Support Enforcement, sought to obtain post-petition funds held by the Trustee following the dismissal of Mr. Webb’s unconfirmed Chapter 13 case to apply against his delinquent child support.
Affirming the bankruptcy and district courts, the Court of Appeals held that 11 U.S.C. § 1326(a) (2) unambiguously states that if a court does not confirm a bankruptcy plan, the Chapter 13 Trustee “shall return” all payments to the debtor. This requirement is sufficiently clear that it preempts Virginia law allowing levy of the Chapter 13 Trustee for delinquent child support.
This is meant to prevent a race to the Trustee to scoop up funds. Virginia would, presumably, be able to seek injunctive relief in an appropriate state court seeking to forbid the Debtor from cashing the check from the Trustee or use any of its other powers to collect from Mr. Webb, including likely incarceration.
This result would presumably also hold true if a case were converted to Chapter 7, absent bad faith, as the wages would not be an asset of the Chapter 7 estate. Se Harris v. Viegelahn, 135 S. Ct. 1829 (2015). Dismissal of a confirmed plan would still result in funds being disbursed pursuant to the plan.