In re Garcia-Martz (2026)

Case details
Country
United States
Jurisdiction
Federal
Decided
2026
Disposition
Dismissed
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.12026 WL 1815400Only the Westlaw citation is currently available.United States Bankruptcy Court,N.D. Indiana, South Bend Division.IN RE: Luanna GARCIA-MARTZ, Debtor.Case No.: 25-31324-pes|Signed June 10, 2026Attorneys and Law FirmsLavita R. Ball, Rodney W. Geer, Cecil Scruggs, Geraci LawL.L.C., Chicago, IL, for Debtor.Tracy L. Updike, Office of the Chapter 13 Trustee, SouthBend, IN, for Trustee Tracy L. Updike.Memorandum Decision on the Trustee'sObjection to Application for CompensationPaul E. Singleton, United States Bankruptcy Judge*1 I. Introduction...––––II. Jurisdiction and Venue...––––III. Facts...––––IV. Analysis of the Trustee's Brief...––––A. Brief's Arguments: Section I(A) and I(B) statutoryconstruction mandates that the Trustee, as disbursementagent, disburse the funds to Debtor and not Debtor'sattorneys....––––1. Section 1326: The majority view applies because it is morespecific than general Code provisions....––––a) Section 1326(a): Chapter 13 requires preconfirmationpayments....––––b) Section 1326(a)(2): A Trustee's roadmap for disbursementof funds when a Chapter 13 plan is not confirmed....––––c) Section 503(b): Administrative compensation andreimbursement under § 330(a)....––––d) Section 330(a)(4)(B): Compensation for attorney work, inChapter 13 cases....––––e) Section 330(a)(3): Compensation for relevant factors,including time, rate, and customary compensation....––––2. The Court found cause under § 349 to revest the propertyto Debtor's attorneys....––––B. Brief's Argument: Sweports is “binding case law” thatrequires the Court to return the funds to Debtor and notDebtor's attorneys....––––C. Brief's Argument: “Harm Created by a Contrary Ruling –Burden Shifting”...––––D. Brief's Argument: “Debtor's Ability to Compromise/Contract with Trustee”...––––V. Brief's Shortcomings under Indiana Rules ofProfessional Conduct and the Federal Rules of BankruptcyProcedure....––––VI. Conclusion...––––The issue before the Court is how a Chapter 13 trustee shoulddisburse funds from the estate when the Court does notconfirm a Chapter 13 plan and dismisses the case.I. IntroductionThe Bankruptcy Code,1 requires a debtor to make planpayments to the Chapter 13 trustee before a bankruptcy courtconfirms a debtor's plan. Section 1326(a)(1).2 Under mostcircumstances, a Chapter 13 trustee does not distribute anyof a debtor's payments until the court confirms or denies adebtor's Chapter 13 plan.3 The Court never confirmed DebtorGarcia-Martz's Chapter 13 Plan.Debtor's attorneys, Geraci Law LLC, ask the Court toaward the firm attorney fees from the funds the Chapter 13Trustee currently holds. The Trustee argues: (I) the timingof Debtor's Application for attorney fees prohibits the Courtfrom granting their Application, and (II) the agreement amongDebtor, Debtor's attorneys, and the Trustee, requires the Courtto distribute the funds to Debtor, and then Debtor wouldrelease those funds to Debtor's attorneys. The Court rejectsboth arguments and orders the Trustee to pay Geraci Lawdirectly.II. Jurisdiction and Venue
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.2A. Jurisdiction Statutes and Local Rules*2 This Court has subject matter jurisdiction. Federal districtcourts have “original and exclusive jurisdiction” of all casesunder Title 11 of the United States Code. 28 U.S.C. § 1334(a).Geraci Law's administrative claim is a “core proceeding.”Id. § 157(b)(2)(B) (explaining core proceedings include“[a]llowance or disallowance of claims against the estate”).Bankruptcy courts have exclusive jurisdiction over disputesinvolving attorney fees. In re Edgewater Sun Spot, Inc., 183B.R. 938, 943 (N.D. Fla. 1995), aff’d sub nom. EdgewaterSun v. Pennington & Haben, 84 F.3d 438 (11th Cir. 1996); Inre Garris, 496 B.R. 343, 354 (Bankr. S.D.N.Y. 2013).Bankruptcy courts are units of their district court. 28 U.S.C.§ 151. District judges may refer bankruptcy cases to thebankruptcy judges in their district. Id. § 157. The DistrictCourt for the Northern District of Indiana has referred all itsbankruptcy cases to the Bankruptcy Court for the NorthernDistrict of Indiana. Id. § 157(a); N.D. Ind. L.R. 200-1(a).B. Ancillary JurisdictionThe Court also has “ancillary jurisdiction.” The SeventhCircuit described ancillary jurisdiction as “clean up”jurisdiction because bankruptcy courts use it to address anyminor loose ends of a case. In re Sweports, Ltd., 777 F.3d 364,367 (7th Cir. 2015). Bankruptcy courts may retain ancillaryjurisdiction for fee applications post dismissal. Id. at 367-68;In re Garris, 496 B.R. 343, 354 (Bankr. S.D.N.Y. 2013); In reMerovich, 547 B.R. 643, 649 (Bankr. M.D. Pa. 2016); In reElias, 188 F.3d 1160, 1164 (9th Cir. 1999).C. VenueThe South Bend Division is the proper venue for Debtor'scase. 28 U.S.C. § 94(a) (identifying La Porte County as acounty belonging in the South Bend Division, a divisionwithin the Northern District of Indiana).4III. FactsA. Debtor files her bankruptcy Petition and Plan but thenmoves to dismiss her case before confirmation.On August 8, 2025, Geraci Law, on Debtor's behalf, filed herChapter 13 Petition [Doc 1] and Chapter 13 Plan. [Doc 6.]Once the attorneys filed the Petition, the automatic stay wentinto place.5 The Court set a plan confirmation hearing forNovember 6, 2025. [Doc 9.] At the hearing, one of Debtor'sattorneys orally moved to dismiss the case. [Docs 32, 33.] TheCourt granted the request but stated, “[a]ny entity wishing tofile a request for payment of an administrative expense under11 U.S.C. § 503(b) shall file the request within 14 days fromthe date of this order.” [Doc 33.]B. Geraci Law applies for compensation, files a proposedorder, and notifies parties that they must object.Debtor's attorneys filed their Application for Compensationtimely. [Doc 36.] In two and one-half pages, Debtor'sattorneys listed the time they spent on performing duties,including: interviewing Debtor, deciding whether to file aChapter 7 or 13 petition, preparing for and attending the341 meeting, communicating with Debtor and the Trustee,drafting the Plan, and reviewing documents. [Id. at pp.3-5.] Further, Debtor's attorneys listed their hourly rates andincluded the number of years each attorney has practiced law.[Id.] Senior attorneys worked for 13 years or more and billedat $425 or $450 per hour, while one attorney, who has onlypracticed for two years, billed at $300 per hour. [Id.]*3 The Application says nothing about settlement or anagreement between parties, nor did it ask the Court to returnthe funds to Geraci Law through Debtor. The Attorneys’Application simply requested, “that the balance of Attorneyfees in the amount of $1,785 be ordered in the instant caseand to grant such other relief as this Court deems just andproper.” [Id. at p. 1.]Geraci Law's proposed order [Doc 36-2.] did not match thefirm's Application. The proposed order stated, “Trustee shalldisburse any funds on hand at dismissal to the Debtor – Careof Geraci Law LLC.” [Id.] The form of order did not statethat Debtor, Debtor's attorneys, and the Trustee agreed to theproposed order, nor did those three entities sign the proposedorder.6Geraci Law informed Debtor, creditors, and the Trustee thatif they objected to the law firm's Application, they must filetheir objection on or before December 11, 2025. [Doc 37.] Ifthey did not file their objection by that time, the Court maygrant the attorneys’ request without having a hearing. [Id.]On the other hand, if they did object, the Court would set ahearing. [Id.]C. The Trustee objects to the Application.The Trustee, the only party opposing the Application, timelyfiled her Objection. [Doc 38.] At the hearing, the Trustee was
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.3not prepared to argue the Objection and asked for additionaltime to file a supporting brief. [Docket Entry 01/22/2026.]The Court granted the request, and 34 days later, the Trusteefiled her Brief.7 [Doc 41.] The Brief's outline is as follows:I. Timing of any post-dismissal administrative claim wouldbe inappropriate for Trustee to disburse.A. Duties and Authority of the Chapter 13 Trustee asDisbursement Agent set by statuteB. Statutory ConstructionC. Binding Caselaw Supports Return of All Funds atDenial of ConfirmationD. Harm Created by a Contrary Ruling – Burden ShiftingII. Debtor's Ability to Compromise/Contract with TrusteeThe Court includes additional facts pertaining to the Trustee'sindividual arguments in the relevant sections below.IV. Analysis of the Trustee's BriefA. Brief's Arguments: Section I(A) and I(B) statutoryconstruction mandates that the Trustee, as disbursementagent, disburse the funds to Debtor and not Debtor'sattorneys.For Parts I(A) and I(B) of the Brief, it appears the Trustee'sargument highlights a split that the Seventh Circuit has yetto resolve – whether § 1326(a)(2) or § 349(b)(3) controlswhen a bankruptcy court dismisses a Chapter 13 case pre-confirmation. The majority of courts conclude that § 1326(a)(2) controls, and therefore, a trustee must disburse fundsto entities (like debtors’ attorneys) who have an allowedadministrative claim before returning any remaining funds tothe debtor. In re Nelums, 617 B.R. 70, 74 (Bankr. D.S.C. 2020)(citing Wheaton, 547 B.R. 490, 498-99 (B.A.P. 1st Cir. 2016))(citations omitted); In re Kirk, 537 B.R. 856, 860-61 (Bankr.N.D. Ohio 2015); In re Fairnot, 571 B.R. 767, 771 (Bankr.E.D. Mich. 2017); Matter of Hightower, No. 14-30452-EJC,2015 WL 5766676, at *5 (Bankr. S.D. Ga. Sept. 30, 2015);Merovich, 547 B.R. at 648; In re Ward, 523 B.R. 142 (E.D.Wis 2014); In re Rogers, 519 B.R. 267, 273 (Bankr. E.D. Ark.2014); In re James, 490 B.R. 795, 798 (Bankr. N.D. Ill. 2013).*4 Under the minority view, § 349(b)(3) requires a trustee torelease the funds to a debtor. That Code section requires fundsto “revest[ ] in the entity in which such property was vestedimmediately before the commencement of the case under thistitle,” which, the Trustee seems to argue, would be Debtor, notDebtor's attorneys. Section 349(b)(3); In re Lewis, 346 B.R.89 (Bankr. E.D. Pa. 2006); Nelums, 617 B.R. at 74 (citationsomitted) (explaining that § 349 controlling over § 1326 is theminority view).The Trustee's Brief is unclear, at times, about which Codeprovision it is citing. It uses words from both statutes but oftenomits the Code citations. In short, the Court rejects the Brief'sarguments under I(A) and I(B) and finds:• § 1326(a)(2) applies because it is the more specific Codeprovision that controls Chapter 13 cases, whereas §349(b)(3) has general applicability across all chapters;• § 349(b)(3) does not apply, but even if it did, the Court's“finding cause” and “ordering otherwise” requires theTrustee to disburse the funds to Debtor's attorneys; and• Contrary to the Brief's assertions, under the facts here, §1326(a)(2), not § 349(b)(3), returns the parties closest totheir prepetition status.1. Section 1326: The majority view applies becauseit is more specific than general Code provisions.As explained in more detail in sections (a)-(e) below, §§1326(a); 503(b); and 330(a)(4)(B) allow attorneys to becompensated for the work they perform in unconfirmedChapter 13 cases.a) Section 1326(a): Chapter 13requires preconfirmation payments.Section 1326(a)(1) requires, under most circumstances, adebtor to make plan payments before a debtor's confirmationhearing: “Unless the court orders otherwise, the debtorshall commence making payments not later than 30 daysafter the date of the filing of the plan or the order forrelief, whichever is earlier.” A debtor may make “adequateprotection” payments to a Chapter 13 trustee so that thetrustee may pay a particular secured creditor pre-confirmationpayments. Section 1326(a)(2); In re Brown, 348 B.R. 583, 590(Bankr. N.D. Ga. 2006); Keith M. Lundin, Lundin On Chapter13, § 39.9.8
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.4b) Section 1326(a)(2): A Trustee'sroadmap for disbursement of funds whena Chapter 13 plan is not confirmed.Section 1326(a)(2) explains that if a court dismisses a casebefore the plan is confirmed, the Chapter 13 trustee mustdeduct allowed administrative claims under § 503(b) – theCode section that governs administrate expenses – then returnthe remaining funds to the debtor. Section 1326(a)(2) states:A payment made under paragraph(1)(A) shall be retained by thetrustee until confirmation or denial ofconfirmation. If a plan is confirmed,the trustee shall distribute any suchpayment in accordance with the plan assoon as is practicable. If a plan is notconfirmed, the trustee shall returnany such payments not previouslypaid and not yet due and owing tocreditors pursuant to paragraph (3)to the debtor, after deducting anyunpaid claim allowed under section503(b)(emphasis added).Thus, here, § 1326(a)(2) operates as follows:(1) Under the first sentence in § 1326(a)(2), Debtor madepre-confirmation plan payments.(2) The Chapter 13 Trustee held those payments until thePlan was confirmed or denied.(3) Under the third sentence in § 1326(a)(2), the Planwas not confirmed. Accordingly, the Trustee must firstdeduct unpaid § 503(b) claims, which, as the next sectionof this Decision explains, can be Debtor's attorney fees,and then return the funds to Debtor (or appropriatecreditors under some circumstances, none of whichapply here).*5 The third sentence in § 1326(a)(2) is clear and onlybecomes operative if the court does not confirm a plan. Inre Kerr, 570 B.R. 76-77 (Bankr. N.D. Ind. 2017). The thirdsentence is a specific Code provision for Debtor's scenarioand is more applicable than any general Code provisions.Kirk, 537 B.R. at 860-61; Wheaton, 547 B.R. at 498-99;Merovich, 547 B.R. at 648.The general Code provision, the part of the Bankruptcy Codethe minority view approach uses, is § 349(b)(3), which states,“Unless the court, for cause, orders otherwise, “a dismissalof a case ... revests the property of the estate in the entityin which such property was vested immediately before thecommencement of the case under this title.” Section 349(b)(3) (emphasis added). As the Court will show below, withthe facts in this case, the emphasized language will becomeimportant. Even if this Court were to adopt the minority view,the language in its order dismissing this case mandates theTrustee pay Geraci Law its attorney fees.This Court agrees with the majority of courts that haveconcluded that when a Chapter 13 case is dismissed pre-confirmation, § 1326(a)(2), not § 349(b), controls. Nelums,617 B.R. at 74 (citing Wheaton, 547 B.R. at 498-99)(explaining that the majority of courts conclude that §1326(a)(2) is the controlling statute regarding disbursementof funds once a Chapter 13 case is dismissed preconfirmation)(citations omitted); see Kirk, 537 B.R. at 861; Fairnot,571 B.R. at 771 (citations omitted); Hightower, 2015 WL5766676, at *6 (citation omitted); Merovich, 547 B.R. at 648;Ward, 523 B.R. at 148; Rogers, 519 B.R. at 271; Garris, 496B.R. at 352; James, 490 B.R. at 798; Kerr, 570 B.R. at 76(citations omitted).Therefore, the Trustee must disburse, as directed by § 1326(a)(2), all pre-confirmation payments to Debtor, “excludingonly those amounts specifically exempted by the statute(i.e., ... § 503(b) administrative expenses).” In re Soussis,136 F.4th 415, 437 (2d Cir. 2025) (emphasis added) (citationsomitted). Next, the Court turns to administrative expensesunder § 503(b).c) Section 503(b): Administrative compensationand reimbursement under § 330(a)Section 503(b) addresses administrative expenses and allowsa court to award attorneys compensation and reimbursementunder § 330(a). The Court underlines the portion the Trusteefocuses on in § 503(b)(1)(A) but bolds the language the Courtfinds applicable.
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.5(b) After notice and a hearing, there shall be allowedadministrative expenses ... including—(1)(A) the actual, necessary costs and expenses ofpreserving the estate ...9(2) compensation and reimbursement awardedunder section 330(a) of this title;(emphasis added). The Brief makes a critical error. It relieson the underlined text – the text in § 503(b)(1)(A) – withoutconsidering the bold text – the text in § 503(b)(2). Section503(b) allows different types of administrative expenses.A § 503(b)(2) administrative expense does not require theadministrative expense to be incurred by the estate. In rePerdido Motel Grp., Inc., 115 B.R. 340, 343 (Bankr. N.D.Ala. 1990); In re Argento, 282 B.R. 108, 116 (Bankr. D.Mass. 2002); Rogers, 2023 WL 6938150, at *2; 3 Collier onBankruptcy P 330.03 [1][v] (16th 2026). In fact, § 503(b)(2) does not reference the estate. Perdido Motel Grp., 115B.R. at 343. Attorney fees are considered an allowableadministrative expense under 11 U.S.C. § 503(b)(2). Matterof Malaspina, 30 B.R. 267, 269 (Bankr. W.D. Pa. 1983).An appropriate § 503(b)(2) administrative expense may alsoinclude compensation and reimbursement awarded under §330(a).d) Section 330(a)(4)(B): Compensationfor attorney work, in Chapter 13 cases*6 Section 330(a)(4)(B) allows attorneys for Chapter 13debtors to be compensated for the work attorneys performedin representing the debtors, even if the attorneys’ work doesnot benefit the estate:In a Chapter 12 or Chapter 13case in which the debtor is anindividual, the court may allowreasonable compensation to thedebtor's attorney for representingthe interests of the debtor inconnection with the bankruptcy casebased on a consideration of thebenefit and necessity of such servicesto the debtor and the other factorsset forth in this section(emphasis added); In re Steen, 631 B.R. 704, 709 (Bankr.N.D. Tex. 2021) (“Section 330(a)(4)(B) essentially createsan exception to the general rule that fees are compensablefrom the estate only if the services benefit the estate”); Inre Williams, 378 B.R. 811, 823 (Bankr. E.D. Mich. 2007)(Section 330(a)(4)(B) (same)); 3 Collier on Bankruptcy P330.03[1][b][v] (16th 2026) (same).Therefore, whether the services rendered benefited the estateis not the proper question to ask here. Congress intended fordebtors’ attorneys in Chapter 13 cases to be compensatedfrom the estate, even when the estate received no directbenefit from the attorneys’ services. In re Walsh, 538 B.R.466, 475 (Bankr. N.D. Ill. 2015) (citations omitted).e) Section 330(a)(3): Compensation for relevant factors,including time, rate, and customary compensationSection 330(a)(3) explains how courts should considerreasonable compensation and lists factors a court may takeinto account:In determining the amount of reasonable compensation tobe awarded to an examiner, trustee under Chapter 11, orprofessional person, the court shall consider the nature, theextent, and the value of such services, taking into accountall relevant factors, including—(A) the time spent on such services;(B) the rates charged for such services;(C) whether the services were necessary to theadministration of, or beneficial at the time at which theservice was rendered toward the completion of, a caseunder this title;(D) whether the services were performed within areasonable amount of time commensurate with thecomplexity, importance, and nature of the problem,issue, or task addressed;(E) with respect to a professional person, whether theperson is board certified or otherwise has demonstratedskill and experience in the bankruptcy field; and
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.6(F) whether the compensation is reasonable based onthe customary compensation charged by comparablyskilled practitioners in cases other than cases under thistitle(emphasis added). When a Chapter 13 debtor's plan is notconfirmed, and the debtor's attorneys seek administrativeexpenses, the attorneys must show they “provided substantial,valuable professional services including investigation,evaluation, and counseling that was intended and designedto achieve an objective appropriate for Chapter 13 cases.”Garris, 496 B.R. at 350.Here, Geraci Law acted reasonably because they providedsubstantial, valuable, and professional services that wereconsistent with the complexity of the problems. The moreexperienced attorneys billed at either $425 or $450 per hour.The one junior attorney billed at $300 per hour. Based in thisCourt's review of other attorney fees in Chapter 13 cases,Geraci Law's rates and the amount of time the attorneys spenton the tasks are consistent with other attorneys’ rates and timein the Northern District of Indiana. The Geraci Law attorneys’actions benefited Debtor. The automatic stay went into effectonce Geraci Law filed Debtor's Petition. Section 362(a); In reSwindle, 584 B.R. 259, 264 (Bankr. N.D. Ill. 2018) (citing Inre Wilson, 536 B.R. 218, 221-22 (Bankr. N.D. Ill. 2015)).*7 The automatic stay gave Debtor “a breathing spell” fromher creditors. Swindle, 584 B.R. at 263 (quotation omitted).The attorneys also interviewed Debtor. They evaluatedwhether a Chapter 7 petition was better than a Chapter 13petition. Even though the Court did not confirm Debtor'sPlan, the attorneys’ counseling intended and was designedto achieve an objective appropriate for Chapter 13 cases.Thus, the Court holds, after careful review, that Geraci Law'sApplication for Compensation, Doc 36, shows a clear benefitto Debtor and is reasonable. Geraci Law's Application forCompensation is allowed under §§ 503(b)(2) and 330(a).2. The Court found cause under § 349 torevest the property to Debtor's attorneys.Again, the Court finds the majority's approach to the § 1326(a)- § 349(b) debate to be the more logical approach. Butfor argument's sake, even if the Court applied the minorityview and concluded that § 349(b) applied, the Trustee stillmust disburse the funds she holds to Debtor's attorneys. TheCourt's order dismissing the case implied that there wascause to not have the funds that the Trustee held dispersedto Debtor. Rather than dismiss the case, the Court allowedparties to request an administrative expense within 14 days.The Court did exactly what § 349(b)(3) contemplated. Itordered “otherwise” and did not dismiss the case immediately.The Trustee argues policy considerations should be the reasonthe Court uses § 349(b)(3). The Trustee states: (1) timing maybe an issue, and that the claim must have already been allowedprior to case dismissal [Doc 41 at p. 4-5], and (2) “§ 349(b)is broad and serves to undo the bankruptcy case to the extentpossible – to put all parties in the positions they were in beforethe case was filed. See In re Hamilton, 493 B.R. 31, 38 (Bankr.M.D. Tenn. 2013).” [Doc 41 at p. 11.]First, to address the timing argument, this Court, like manyother courts, concludes, the Trustee's argument is mistaken.Accepting the Trustee's argument would encourage, “earlierand more frequent fee applications.” Garris, 496 B.R. at 350.Additionally, the Trustee's argument “would ‘add complexityto the Chapter 13 process and compel the expenditure ofan inordinate amount of attorney and judicial resourceson the fee allowance process.’ ” Id. (quotation omitted).Courts may order Chapter 13 trustees to disburse funds inunconfirmed cases on “unpaid claim[s] that might be allowedunder 11 U.S.C. § 503(b).” In re Pynn, 676 B.R. 819, 821(Bankr. W.D.N.Y. 2026) (emphasis added); see also Matterof Malaspina, 30 B.R. 267, 269 (Bankr. W.D. Pa. 1983)(explaining that attorney's fees are an allowable § 503(b)(2)administrative expense); see also James, 490 B.R. at 798-99(explaining that compensation and reimbursement awardedunder § 330 is an allowed claim when there is no planconfirmation). Even when a Chapter 13 plan has not beenconfirmed or gets converted, a trustee still has authority under§ 1326(a)(2) to be the distributing agent. Wheaton, 547 B.R.at 497; see also Fairnot, 571 B.R. at 771 (holding that oncethe case is dismissed, pre-confirmation, debtor's attorney mayrefile their fee application and if it is granted the trusteemust disburse funds to counsel before returning funds to thedebtor).Second, the Trustee's 349(b) argument is wrong for anotherreason. The Trustee cites In re Hamilton, 493 B.R. 31, 38(Bankr. M.D. Tenn. 2013), but that case does not apply. InHamilton, Chief Judge Lundin confirmed debtor's plan. Id.at 32, 33 (emphasis added). In this case, the Court neverconfirmed Debtor's Plan.
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.7*8 Third, even if Hamilton did apply, the holding hurtsthe Trustee's argument. There, the Hamilton court stated,at least four times, under § 349(b), property vests withthe debtor, unless the court orders “otherwise.” Id. at 39,44, 45 (UNLESS THE COURT, FOR CAUSE, ORDERSOTHERWISE) (bold and capitalization in the original). Id.at 44. The court also said, “[b]ankruptcy courts have statutorydiscretion to order otherwise”. Id. at 46. In fact, the Hamiltoncourt held that “undistributed funds held by the trustee mustbe returned to the debtors after notice and opportunity forparties in interest to ask the court to order otherwise.” Id. Andthat is precisely what the Court did here. It ordered otherwise.Figures 1 and 2 below summarize the major provisions from§§ 1326(a) and 349(b). In sum, the Court agrees with themajority, but even if the Court were to adopt the minorityapproach, the Court would still be correct. The Court rejectsthe Trustee's policy arguments and the case law she citesbecause the case law does not apply. But even if the case lawthe Brief cites did apply, those cases would cut against theTrustee's arguments.Figure 1: Attorney Compensation in Ch. 13 (Majority)Tabular or graphic material set at this point is not displayable.Figure 2: § 349(b)(3) Dismissal of a Case (Minority)Tabular or graphic material set at this point is not displayable.B. Brief's Argument: Sweports is “binding case law” thatrequires the Court to return the funds to Debtor and notDebtor's attorneys.The Trustee's Brief is wrong for three reasons. First, Sweportsdoes not apply. In re Sweports Ltd., 777 F.3d 364 (7thCir. 2015). In Sweports, the Seventh Circuit reversed thebankruptcy court when the bankruptcy court erroneouslyconcluded that it did not have jurisdiction to determinewhether the Chapter 11 creditors’ attorney was entitled toattorney fees, after the bankruptcy court dismissed the case.Id. at 365, 368. Sweports does not apply because:• Sweports was a Chapter 11 case, and this case is a Chapter13 case. As discussed above, § 330(a)(4)(B), allowsChapter 13 attorneys to be compensated when their workbenefits the debtor.• The issue in Sweports was whether the bankruptcy courthad the jurisdiction to order payment of fees (as opposedto “determining an entitlement to fees”) on the attorney'ssecond request for work. Id. at 365. Previously, theattorney made an interim request for fees, and the Courtgranted the request. Id. at 365, 366.• The attorney in Sweports requested an award for attorneyfees as creditor's counsel. Id. at 365-366. Here, GeraciLaw firm represents Debtor, not creditors.Geraci Law is not yet a creditor (but would be, if theCourt adopted the Trustee's approach). Geraci Law representsDebtor; § 1326(a)(2) (and even under the Trustee's incorrectapproach, § 349(b)(3)) allows the law firm to ask for paymentas an administrative expense. But if the Court acceptedthe Trustee's approach, as discussed below, the firm wouldbecome a creditor. Thus, the Trustee should disburse the fundsdirectly to Geraci Law.The Brief also cites Marshall v. Johnson, another case fromthe Seventh Circuit. Marshall v. Johnson, 100 F.4th 914, 917(7th Cir. 2024). It is unclear whether the Brief considersMarshall binding case law because it only discusses it in thesection labeled “Statutory Construction.” Still, the Court findsMarshall inapplicable. The issue in Marshall was whetherChapter 13 trustees could deduct their own fees beforedisbursing the remaining funds back to debtors. Id. at 916.The case was not about distribution of all fees as the Trustee'sBrief indicates. The Seventh Circuit explained that neitherexception under § 1326(a)(2) applies to Chapter 13 trustees’fees. Id. at 917. Further, § 503(b) did not apply in Marshall.Id. (citation omitted) (explaining that a Chapter 13 trustee feeis not considered a § 503(b) administrative expense). Here, §503(b) is a central Code provision for this Courts particularissue.*9 Thus, different from what the Brief says, Sweports norMarshall apply, and there is no other “binding” case law thatmandates the Court order the Trustee to disburse the funds toDebtor and not Debtor's attorneys.C. Brief's Argument: “Harm Created by a ContraryRuling – Burden Shifting”Section (I)(D) of the Brief states, “Harm Created by aContrary Ruling – Burden Shifting,” and the first sentencein this section reads, “Trustee fees are not compensation tothe Trustee, but instead are reimbursement to the Trust forcosts ....” [Doc 41 at p. 9.] The Brief also says, “shifting costsfor disbursements that are not required to be made by the Trustto the Trust by ordering such disbursements shifts those costs
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.8to all other debtors,” and “Trustee simply requests that thisCourt order that any reasonable compensation due and owingto Applicant be ordered to be paid by Debtor directly.” [Doc41 at p. 9] (emphasis in original).The Court does not understand how the Trustee distributingthe funds to Debtor instead of Debtor's attorneys shifts aburden or harms other debtors. Further, the Trustee didnot support the argument with statutes, rules, case law, ordata. The arguments pertained to whether the Trustee couldbe compensated for the Trustee's expenses in unconfirmedChapter 13 cases. They make no sense here, and the Courtdisregards them.D. Brief's Argument: “Debtor's Ability to Compromise/Contract with Trustee”The Trustee states that Debtor, Debtor's attorneys, and theTrustee reached a settlement agreement where the Trusteewould pay Debtor, and then Debtor would pay Geraci Law.[Doc 41 at pp. 1, 10.] Bankruptcy Rule 9019(a) addressescompromises and settlement agreements and states, “On thetrustee's motion and after notice and a hearing, the court mayapprove a compromise or settlement.” Trustees must givenotice to, among others, “all creditors.” Id.The Trustee never filed a motion to settle or compromise,nor did the Trustee give notice to creditors. And even ifthe Trustee did both things, parties may not enter intoan agreement to circumvent the Bankruptcy Code. Rogers,519 B.R. at 271 (explaining, “the Code is not preemptedor supplanted by the supposed attorney's lien or [debtor'sattorney] contract with the debtor.”); see generally In reFirstEnergy Sols. Corp., 596 B.R. 631, 659 (Bankr. N.D.Ohio 2019) (citation omitted) (explaining that a party's rightto contract around an essential provision of the BankruptcyCode is pre-empted). Allowing parties to contract aroundthe Code would render the Code useless. In re InterventionEnergy Holdings, 553 B.R. 258, 263 (Bankr. D. Del. 2016)(quoting In re 203 N. LaSalle St. P'ship, 246 B.R. 325, 331(Bankr. N.D. Ill. 2000)).Further, no party would be able to enforce the parties’separate agreement. Garris, 496 B.R. at 354 (citationsomitted) (explaining “[a] fee that is not enforceable under theBankruptcy Code is not transformed by virtue of a privateagreement, into an enforceable one after a case is dismissed,even if such an agreement would be otherwise enforceableunder state law.”) Geraci Law would be unable to collect feeswithout the Court's approval. Rogers, 519 B.R. at 271 (citingGarris, 496 B.R. at 353-54).*10 Additionally, the settlement would leave Debtor worsethan she was before filing her bankruptcy petition. As theBrief says, if the Court dismissed the case and the Trusteegave the funds directly to Debtor, Debtor would now have“obligations to counsel.” [Doc 41 at p. 11.] So, if theCourt were to accept the Trustee's approach after the Courtdismissed the case, Debtor would not be in the same positionshe was in before she filed her Petition. She would be in a lessdesirable position because she would have a new creditor –Geraci Law. If she did not pay Geraci Law and sought to fileanother bankruptcy petition, Geraci Law would be unable torepresent her. In Debtor's hypothetical new petition, Debtorwould list Geraci Law as a creditor and the attorneys wouldbe in a position where they would be seeking to dischargethe fees Debtor owes them in this case and at the same time,seeking fees for representing Debtor in the new case.Here, the Court declines to accept an unapproved,unenforceable settlement agreement. The Trustee mustdistribute payments as laid out in § 1326(a)(2). In re Harris,258 B.R. 8, 14 (Bankr. D. Idaho 2000) (explaining that“Debtor's desires (or perhaps those of his attorney) should notbe allowed to short circuit the operation of the BankruptcyCode.”) The Court will issue a separate order instructing theTrustee to do so.V. Brief's Shortcomings under Indiana Rules ofProfessional Conduct and the Federal Rules ofBankruptcy ProcedureThe Seventh Circuit said, “judges are not like pigs, huntingfor truffles buried in briefs.” United States v. Dunkel, 927 F.2d955, 956 (7th Cir. 1991). The Indiana Rules of ProfessionalConduct (“Ind. R. Prof. Cond.”)10 and the Federal Rulesof Bankruptcy Procedure (“Fed. R. Bank. P.”)11 codify thissentiment. Under the Ind. R. Prof. Cond., attorneys mustdisplay competence under Rule 1.1;12 present meritoriousclaims and contentions under Rule 3.1;13 and have candortoward the tribunal under Rule 3.3.14 Davis v. MarionCo. Superior Ct Juvenile Detention Ctr, Kervan, No. 1:24-CV-01918-JRO-MJD, 2026 WL 1408448, at *2 (S.D. Ind.May 20, 2026) (citing Ind. R. Prof. Cond.).*11 Under Fed. R. Bankr. P. 9011(b), when an attorney signsor files a document with the court, the attorney, among other
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.9representations, certifies that, to the best of the attorney's“knowledge, information, and belief formed after an inquiryreasonable under the circumstances:...(2) the claims, defenses, and other legal contentions arewarranted by existing law or by a nonfrivolous argumentto extend, modify, or reverse existing law, or to establishnew law; [and](3) the allegations and factual contentions have evidentiarysupport—or if specifically so identified, are likely to haveevidentiary support after a reasonable opportunity forfurther investigation or discovery.”Rule 9011 is meant to “deter unnecessary filings, prevent theassertion of frivolous pleadings, and to require good faithfilings.” In re McNichols, 258 B.R. 892, 899 (Bankr. N.D.Ill. 2001) (citation omitted). Reasonable misconstruction ofcase law is not sanctionable; however, deliberately ignoringor misstating case law is a sanctionable offense. Hess v.Biomet, Inc., No. 3:16-CV-208 JD, 2022 WL 2314885, at*19 (N.D. Ind. June 28, 2022)15 (citation omitted). Actionssuch as deliberately misstating case law, not indicating tothe court that a quotation was altered, relying on cases notlegally relevant to the issue, and misrepresenting quotationsor including misleading quotations have all been found assanctionable conduct. Hess v. Biomet, Inc., No. 3:16-CV-208JD, 2022 WL 2314885, at *19-20 (N.D. Ind. June 28, 2022).When attorneys assert law that “a reasonable attorney in likecircumstances could not have believed [their] actions to belegally justified” there has been a violation of Rule 9011(b)(2). In re Kersner, 412 B.R. 733, 745 (Bankr. D. Md. 2009)(citation modified).The Court was prepared to hear arguments on the Trustee'sObjection. But the Trustee was not prepared and askedfor additional time to file a supporting Brief. The Courtgranted the Trustee's request and gave her 34 days to filethe Brief. Still, the Court had to hunt for the argumentsburied in the Trustee's Brief. Some errors could be seen asa reasonable misconstruction of case law. Other arguments,some discussed above, and others included below, misstatedcase law, did not indicate that quotations were altered, andrelied on cases not legally relevant. Accordingly, the Courtfound that the Trustee's Brief included statements for whichthe Court may sanction.Figure 3 below cites the 13 deficient arguments previouslymentioned above; captures additional questionablearguments, misleading quotes, a non-existent BankruptcyRule; internally inconsistent and contradictory arguments;and describes other problems with the Trustee's Brief. TheCourt would not have a problem if the issues below wereisolated, or if only a few of them appeared. But collectively,they may suggest that the Trustee has violated one or more ofthe Ind. R. Prof. Cond or Fed. R. Bank. P 9011.Figure 316: Deficiencies in the Trustee's BriefTabular or graphic material set at this point is not displayable.VI. Conclusion*12 The Court rejects the Trustee's arguments. First, themajority approach to the §§ 1326(a)(2) – 349(b)(3) divide isthe better approach. But even if the Court applied the minorityapproach, the result would be the same. Geraci Law is entitledto the administrative expense it seeks, and the Trustee mustdisburse the funds to Debtor's attorneys. To the Trustee'ssecond argument, the Trustee is wrong about “binding” caselaw. There is no binding case law that says the Trustee mustdisburse the funds to Debtor, and then Debtor will disbursethose funds to Debtor's attorneys.The Trustee's third argument, the harm created by a contraryruling, does not apply to these facts, and it appears to becut and pasted from previous briefs. The fourth argument,Debtor's ability to compromise, lacks support from theBankruptcy Code, Federal Rules of Bankruptcy Procedure,and case law.The Court will enter two separate orders. The first willaward Geraci Law its request for compensation as an allowedadministrative expense under § 503(b). The Trustee willdistribute the funds in accordance with § 1326(a)(2), meaningthe Trustee must first distribute $1,785 to Debtor's attorneyas an allowed administrative expense before distributing anyremaining funds to Debtor. The second order will direct theTrustee to show cause in writing and at a hearing, why sheshould not be sanctioned for the 13 issues highlighted inFigure 3.SO ORDERED.
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.10All Citations--- B.R. ----, 2026 WL 1815400Footnotes1Aside from Section I of this Decision, when the Court discusses jurisdiction and venue, all future referencesto statutes will be to Title 11, the Bankruptcy Code.The Code does not capitalize “Title” or “Chapter.” See, e.g., § 503. Many courts capitalize Title and Chapter.See, e.g., Marshall v. Johnson, 100 F.4th 914, 918 (7th Cir. 2024). For consistency purposes, this Decisioncapitalizes Title and Chapter, unless the quoted material does not capitalize Title and Chapter.This Decision uses “§” and “Section” interchangeably. “Section” is used after a sentence's period, and “§”is used in the middle of sentences.2Section 1326(a)(1) states, “Unless the court orders otherwise, the debtor shall commence making paymentsnot later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier ...”3In re Lewis, 346 B.R. 89, 109 (Bankr. E.D. Pa. 2006).4Debtor resides in La Porte County, Indiana. [Doc 1 at p. 2.]511 U.S.C. § 362(a); In re Swindle, 584 B.R. 259, 264 (Bankr. N.D. Ill. 2018) (“The automatic stay is a self-executing provision of the Bankruptcy Code and begins to operate nationwide, without notice, once a debtorfiles a petition for relief”) (citing In re Wilson, 536 B.R. 218, 221-22 (Bankr. N.D. Ill. 2015)).6In this Court, when parties tender an agreed order, they customarily communicate that the parties agree tothe order by writing, “reviewed and agreed to by ____” and sign their name.7Geraci Law did not respond to the Trustee's Objection or Brief.8LundinOnChapter13.com (last visited April 29, 2026).9Trustee quotes, this language, “preserving the estate,” but does not cite any Bankruptcy Code provisions orcase law. [Doc 41 at p. 7.] The Court believes she is citing § 503(b).10The District Court's Local Rules state the Ind. R. Prof. Cond. apply to attorneys appearing in court. N.D. Ind.L.R. 83-5(e). Bankruptcy courts are units of the district court. 28 U.S.C. § 151. Therefore, Indiana Rules ofProfessional Conduct apply to attorneys practicing in this Court.11Bankruptcy Courts interpreting Federal Rule of Bankruptcy Procedure 9011 may use Federal Rule of CivilProcedure 11 for guidance. In re Brent, 458 B.R. 444, 457 fn 9 (Bankr. N.D. Ill. 2011) (citation omitted); Inre McNichols, 258 B.R. 892, 899 (Bankr. N.D. Ill. 2001) (citing In re Famisaran, 224 B.R. 886, 894 (Bankr.N.D. Ill. 1998)).Rule 9011 was modeled after Civil Procedure Rule 11. In re McNichols, 258 B.R. 892, 899 (Bankr. N.D. Ill.2001) (citing In re Park Place Assocs., 118 B.R. 613, 616 (Bankr. N.D. Ill. 1990)); In re Excello Press, Inc.,967 F.2d 1109, 1111 (7th Cir.1992); see also In re Brent, 458 B.R. 444, 457 fn 9 (Bankr. N.D. Ill. 2011)(citation omitted) (explaining that Rule 11 case law is helpful when analyzing Rule 9011).
In re Garcia-Martz, --- B.R. ---- (2026) WESTLAW   © 2026 Thomson Reuters. No claim to original U.S. Government Works.1112Ind. R. Prof. Cond. 1.1 states, “A lawyer shall provide competent representation to a client. Competentrepresentation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary forthe representation.”13Ind. R. Prof. Cond. 3.1 says, “A lawyer shall not bring or defend a proceeding, or assert or controvert an issuetherein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faithargument for an extension, modification or reversal of existing law. A lawyer for the defendant in a criminalproceeding, or the respondent in a proceeding that could result in incarceration, may nevertheless so defendthe proceeding as to require that every element of the case be established.”14Ind. R. Prof. Cond. 3.3(a) prohibits lawyers from making false statements of fact or law or offer evidence thelawyer knows to be false.15In Hess, the District Court examined Fed. R. Civ. P. 11 and required defense counsel to show cause whythey should not be sanctioned. 2022 WL 2314885, at *19, 21.16This chart follows Trustee's Brief, Doc 41, in chronological order.End of Document© 2026 Thomson Reuters. No claim to original U.S. Government Works.
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