In Re: Michael, No. 11-1992 (3d Cir. 2012)
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Michael filed a Chapter 13 voluntary petition and the Bankruptcy Court confirmed his reorganization plan, providing that Michael would pay $277 monthly to the trustee, for 53 months; the trustee would direct the monies to creditors, including GMAC, which held a mortgage on Michael‘s residence. Michael would make regular mortgage payments to GMAC outside of the Plan. To the extent funds were available, unsecured creditors would be paid pro rata. Michael’s wages were attached and paid directly to the trustee. Michael was unable to make mortgage payments outside of the Plan. The Bankruptcy Court granted GMAC relief from the automatic stay to allow foreclosure. Because Michael did not move to amend the Plan or modify the wage attachment, the trustee continued to receive payments. GMAC refused to accept payments to avoid an estoppel or waiver defense to its mortgage foreclosure. The funds accumulated until Michael converted his case to Chapter 7 and moved for return of the $9,181.62. The trustee objected, arguing that the funds should be distributed to unsecured creditors. The bankruptcy and district courts, noting that the Code does not clearly address the issue, concluded that the funds must be returned to Michael. The Third Circuit affirmed.
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