Heath, Matter of

• Decision Date: 10 June 1997
• Docket Number: No. 96-3066,96-3066
• Citation: 115 F.3d 521
• Parties: Bankr. L. Rep. P 77,399 In the Matter of June M. HEATH, Debtor. Joseph M. BLACK, Trustee, Plaintiff-Appellant, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 521

115 F.3d 521

Bankr. L. Rep. P 77,399

In the Matter of June M. HEATH, Debtor.

Joseph M. BLACK, Trustee, Plaintiff-Appellant, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee.

No. 96-3066.

United States Court of Appeals, Seventh Circuit.

Argued April 7, 1997.

Decided June 10, 1997.

Joseph M. Black (argued), John F. Rothring, Rothring, Lambring & Black, Seymour, IN, for Trustee-Appellant.

Jeffrey L. Hunter (argued), Judith A. Stewart, Office of the United States Attorney, Indianapolis, IN, for Appellee.

Before POSNER, Chief Judge, and FLAUM and ROVNER, Circuit Judges.

POSNER, Chief Judge.

A trustee in bankruptcy filed an adversary action in the bankruptcy court seeking to recover $50 for his debtor. The court rendered judgment for the trustee, but the district court reversed, 198 B.R. 298 (S.D.Ind.1996), and the trustee has now appealed to us. The trustee's motivation in pursuing this minuscule claim through three courts eludes us. But as there is no minimum amount in controversy required to litigate under the Bankruptcy Code, we must treat this $50 case--which in fact involves important questions of law--with all the gravity of a $50 million case.

Heath, a postal worker, filed for bankruptcy under Chapter 13, which is a kind of "personal reorganization" counterpart to the better-known Chapter 11 (corporate reorganization). In re Hoskins, 102 F.3d 311, 313 (7th Cir.1996); In re Penrod, 50 F.3d 459, 464 (7th Cir.1995); In re Love, 957 F.2d 1350, 1356 (7th Cir.1992). The Chapter 13 debtor proposes a plan for the payment of creditors over time, in lieu of liquidation of the debtor's estate as in Chapter 7. Heath proposed and the bankruptcy court confirmed a plan under which she would pay all the allowed claims of her creditors over a period of five years at the rate of $32 a week, at the end of which time, if the plan was completed successfully, she would be discharged from her debts and the bankruptcy proceeding would be dismissed. Neither the plan nor the order confirming it actually says that she will be discharged and the proceeding dismissed when and if the plan is completed successfully, but that is the law. 11 U.S.C. § 1328(a); In re Aberegg, 961 F.2d 1307, 1308 (7th Cir.1992); In re Arnold, 869 F.2d 240, 242 (4th Cir.1989). The $32 weekly payment is to be made to a trustee in bankruptcy, appointed by the court, for distribution to the creditors in accordance with the terms of the plan. The order of the bankruptcy judge confirming the plan states that "the debtor's income and other assets including accounts receivables [sic] remain estate property to the extent necessary to fulfill the plan."

As authorized by Chapter 13 and provided for in the plan, the court issued a "take out order" directing Heath's then employer to garnish $32 a week of her salary. 11 U.S.C. § 1325(c). A year later, when she had left that employer and gone to work for the Postal Service, a new take-out order was issued directing the Postal Service to withhold $75.77 from her biweekly pay. This is considerably more than $32 a week; we cannot find in the record any explanation for the increase--perhaps it was to make up for missed payments between jobs. However that may be, the Service charged a $50 fee for the garnishment. It claims that the fee is authorized by 5 U.S.C. § 5520a(j)(2), as it existed before a recent amendment; the trustee disagrees; we won't have to decide.

This was a one-time fee that was deducted from Heath's salary rather than from the amount of that salary that the Postal Service garnishes and pays over to the trustee. So it did not interfere, at least directly, with the payments to the creditors under the plan. Nevertheless, the trustee is suing for the return of the $50. If he wins the suit, he will turn the money over to Heath, not to the creditors, who as we have just explained are not entitled to it--they are continuing to receive the full payments to which the plan entitles them; the $50 was not deducted from those payments. The trustee will not charge Heath, or the creditors, any fee for his services in obtaining the $50; for, as the plan fixes his fee at 10 percent of the amount paid to the creditors, plus a $1,000 attorney's fee, he has no right to a fee for his services in this adversary action.

It may seem very odd for the trustee to be suing on behalf not of the creditors but of the debtor. It seemed so to the district court, which concluded that he had no standing. The Postal Service, in defense of the court's ruling, asks us to imagine the next case--in which the trustee brings suit on behalf of Heath against a grocer who overcharges her for an apple that she had paid for out of her income. Silly as that case seems (and at bottom is), it cannot simply be laughed out of court. The trustee in bankruptcy has, with immaterial exceptions listed in In re Perkins, 902 F.2d 1254, 1258 (7th Cir.1990), the exclusive right to sue on behalf of the debtor's estate. E.g., id. at 1257; Vega v. Gasper, 36 F.3d 417, 422 (5th Cir.1994); In re Eisen, 31 F.3d 1447, 1451 n. 2 (9th Cir.1994); Bauer v. Commerce Union Bank, 859 F.2d 438, 441 (6th Cir.1988); see 11 U.S.C. § 323. As the property of the estate includes income generated by property of the estate (rental income for example), 11 U.S.C. § 541(a)(6), as well as (with immaterial exceptions) the estate's legal and equitable interests, § 541(a), a suit to collect such income would be within the trustee's purview.

If in a Chapter 11 proceeding in which a trustee is appointed the debtor has rental income before the plan is confirmed and the trustee terminated, the income is received by the trustee; and if there is a dispute over how much is owed, it is the trustee who will litigate the dispute with the tenant, by means of an adversary action filed in the bankruptcy court. E.g., In re Schnabel, 612 F.2d 315, 316 (7th Cir.1980); 1 Daniel R. Cowans, Bankruptcy Law and Practice § 2.7, p. 155 (6th ed.1994); cf. 28 U.S.C. § 959. What makes the parallel authority of a Chapter 13 trustee seem odd, even weird, is that the Chapter 13 debtor is not a business firm and the bankruptcy proceeding is wound up not when the plan is confirmed, as in a Chapter 11 reorganization, 11 U.S.C. § 1141(b), but when it is successfully completed, § 1328(a); In re Carr, 159 B.R. 538, 543 (D.Neb.1993); In re Townsend, 187 B.R. 230, 235 (Bankr.W.D.Tenn.1995); In re Rivera, 177 B.R. 332 (Bankr.C.D.Cal.1995), normally three years after confirmation but here five. It is possible for the entire income of the debtor during that period to be property of the debtor's estate and so within the control of the trustee, in which event any dispute over that income,...