Opinion
07-21142
01-11-2022
In Re: Vanessa Faye Chandler, Debtor
Chapter 7
ORDER DENYING MOTION TO WITHDRAW MONEY (DKT. NO. 51)
James R. Ahler, Judge United States Bankruptcy Court
This matter is before the Court on a motion (the "Motion") filed by the debtor, Vanessa Faye Chandler ("Debtor") requesting the release of unclaimed funds. On April 11, 2019, the Chapter 7 Trustee (the "Trustee") filed a notice of asset recovery in this case and set a claims bar date. (Dkt. No. 24). No claims were filed so the Trustee, pursuant to 11 U.S.C. § 501(c) and Federal Rule of Bankruptcy Procedure 3004, filed proofs of claims on the creditors' behalf, including a claim for Argent HealthCare ("Argent") that is docketed in the Claims Registry as Claim #2. (Dkt. No. 33). The Trustee then proceeded to make distributions pursuant to 11 U.S.C. § 726(a)(2). Argent, however, did not cash the check the Trustee distributed to it in the amount of $128.56. Therefore, as required by 11 U.S.C. § 347(a), on January 8, 2021, the Trustee filed a notice that these funds were being paid into the Court's registry "for the use and benefit of the parties set forth therein" (i.e., Argent). (Dkt. No. 50).
Debtor argues that Argent has abandoned its claim in this case and Yoon v. Van Cleef, 498 B.R. 864 (Bankr. N.D. Ind. 2013), she may apply to the Court for the return of the funds the Trustee attempted to distribute. In support of this contention, Debtor alleges that the right to payment of these funds has not been assigned or transferred to any other entity and attached an affidavit to the Motion averring that she is the debtor in this case and that the funds on deposit "were paid by my funds towards Argent HealthCare." The issue before the Court is whether, in a Chapter 7 proceeding, a debtor is entitled to money distributed to a creditor on account of an allowed claim solely because the creditor did not cash the trustee's distribution check. For the reasons stated herein, the answer is no.
Under 11 U.S.C. § 347(a), the trustee shall stop payment of any check remaining unpaid ninety days after the final distribution under chapter 7, subchapter V of chapter 11, 12 or 13, and such amounts will be paid into the registry fund of the bankruptcy court as unclaimed funds and shall be disposed of under Chapter 129 of Title 28. In re Montalvo, 05-0006917ESL, 2010 WL 5072120, at *1 (Bankr. D. P.R. Dec. 7, 2010). First, 28 U.S.C. § 2041 states:
All moneys paid into any court of the United States, or received by the officers thereof, in any case pending or adjudicated in such court, shall be forthwith deposited with the Treasurer of the United States or a designated depositary, in the name and to the credit of such court. This section shall not prevent the delivery of any such money to the rightful owners upon security, according to the agreement of parties, under the direction of the court.11 U.S.C. § 2041 (emphasis added). While § 2042 provides:
No money deposited under section 2041 of this title shall be withdrawn except by order of court.
In every case in which the right to withdraw money deposited in court under section 2041 has been adjudicated or is not in dispute and such money has remained so deposited for at least five years unclaimed by the person entitled thereto, such court shall cause such money to be deposited in the Treasury in the name and to the credit of the United States. Any claimant entitled to any such money may, on petition to the court and upon notice to the United States attorney and full proof of the right thereto, obtain an order directing payment to him.28 U.S.C. § 2042 (emphasis added).
The key terms courts have distilled from the foregoing statutory provisions are "rightful owner", "entitled to", and "full proof of the right thereto." In re Pickett, 632 B.R. 78, 83 (Bankr. E.D. Cal. 2021). The unclaimed funds deposited by the trustee in the court's registry fund are held in trust for the person legally entitled to the same. In re Montalvo, 2010 WL 5072120, at*l (citing In re Parker, 400 B.R. 55, 59 (Bankr. E.D. Pa. 2009)). Courts determining the right to claim ownership of such funds on deposit require a clear showing that the claimant is entitled to the funds and have held that funds on deposit with the court may only be distributed to their "rightful owner" and "only the creditor to whom distribution was to be made is the rightful owner of the unclaimed funds." In re Montalvo, 2010 WL 5072120, at *2 (internal citation omitted); In re Rush Hampton Indus., Inc., 379 B.R. 192, 193 (Bankr. M.D. Fla. 2007) (internal citations omitted); see In re Application for Unclaimed Funds, 341 B.R. 65, 69 (Bankr. N.D.Ga. 2005) ("the 'rightful owner' of unclaimed funds paid into the court under § 347(a) is the holder of the proof of claim on account of which the trustee made the distribution."). The petitioner for unclaimed funds has the burden of proof to demonstrate the present entitlement to receive the funds. In re Pickett, 632 B.R. at 85 (internal citations omitted).
Based upon the foregoing, the rightful owner of the funds in question is Argent. Argent is: (1) the creditor identified in Claim #2; (2) the claimant to whom the Trustee was authorized to make distribution; and (3) the entity for whom the funds were deposited. Debtor has not satisfied her burden of proof and demonstrated that she is entitled to these funds, in fact, the affidavit attached to the Motion only bolsters the Court's conclusion that these funds are the property of Argent. Although the Court is sympathetic to Debtor's position, a debtor "cannot help [themselves] to the property of a creditor merely because the creditor has not been paying attention." Id. at 84. "Unclaimed funds do not become 'surplus funds' when they are not claimed by a creditor who did not cash the check. The creditor retains a property interest in the unclaimed funds." In re Montalvo, 210 WL 5072120 at *2 (internal citations omitted). In sum, Debtor has not demonstrated that she is the rightful owner of the funds at issue.
Debtor's reliance on Yoon v. Van Cleef, supra, is misplaced. In that case the district court determined that a Chapter 7 Trustee has the authority to file proofs of claims on behalf of creditors that fail to do so timely. Yoon, 498 B.R. at 869. In dicta, the court indicated that in such a circumstance a debtor could subsequently apply for the return of any unclaimed funds; but the court did not suggest in any way that a debtor was ipso facto entitled to them. Therefore, under the facts presented, the Court finds that the Motion should be denied.
In support of this statement, the district court cited to In re Atkins, 343 B.R. 283 (Bankr. M.D. Fla. 2005). In that case the court held that, after notice and lack of objections, a debtor in a Chapter 7 proceeding was entitled to unclaimed funds under equitable principals. However, in support of this conclusion, the Atkins court cited to In re Georgian Villa, Inc., 55 F.3d 1561, 1563 (11th Cir. 1995). Georgian Villa was a proceeding pending under Chapter 11 of the United States Bankruptcy Code and is of limited applicability to cases pending under either Chapter 7 or 13 of the Code. Specifically, 11 U.S.C. § 347(a) does not require the deposit of unclaimed funds to the Court's registry in a non-Subchapter V Chapter 11 proceeding. Rather, § 347(b) provides a specific statutory mechanism for the potential return of unclaimed property to a Chapter 11 debtor.
All of the foregoing is ordered, adjudged, and decreed this 11th day of January 2022 in Hammond, Indiana.