Introduction

In In re: Soussis, the U.S. Court of Appeals for the Second Circuit resolved a recurring question of Chapter 13 practice: whether a standing Chapter 13 trustee may retain the statutory percentage fee from a debtor’s pre-confirmation payments when the case is dismissed before plan confirmation. Reversing the district court and bankruptcy court, the Second Circuit held that the trustee must return all pre-confirmation payments—including the portion allocable to the trustee’s percentage fee—when no plan is confirmed, subject only to the narrow deductions expressly enumerated in 11 U.S.C. § 1326(a)(2).

The appellant, debtor Julia F. Soussis, made substantial pre-confirmation payments totaling $362,100 to Standing Trustee Michael J. Macco in her Chapter 13 case. After Soussis voluntarily dismissed her case before any confirmation hearing or discharge, the trustee refunded $341,508 but retained $20,592 (approximately 5.7%) as his percentage fee. Both the bankruptcy court and the district court concluded the trustee could keep that fee. The Second Circuit disagreed, joining the Seventh, Ninth, and Tenth Circuits in concluding that the fee must also be returned because it is part of the “payments … proposed by the plan” that § 1326(a)(2) requires the trustee to “return” if the plan is not confirmed.

The decision turns on the interaction between two statutes: 11 U.S.C. § 1326(a), which governs pre-confirmation payments in Chapter 13, and 28 U.S.C. § 586(e), which establishes the compensation framework for standing trustees. The Second Circuit’s careful textual analysis, bolstered by legislative history and cross-chapter comparisons to Chapter 12 and Subchapter V of Chapter 11, harmonizes these provisions and clarifies trustee compensation in failed Chapter 13 cases within the Second Circuit.

Parties:

• Appellant: Debtor Julia F. Soussis
• Appellees: Michael J. Macco (Chapter 13 Standing Trustee) and the U.S. Trustee

Summary of the Opinion

• The court holds de novo that a Chapter 13 standing trustee may not retain any percentage fee from pre-confirmation payments if no plan is confirmed.
• 11 U.S.C. § 1326(a)(2) requires the trustee to return the “payments … proposed by the plan” upon non-confirmation, and those “payments” include the trustee’s percentage fee collected from those very payments.
• 28 U.S.C. § 586(e)(2) states that the trustee “shall collect” the fee from payments received under plans but does not unambiguously authorize the trustee to keep the fee if the plan is not confirmed. “Collect” is ambiguous; read in pari materia with § 1326, it means collect and retain provisionally pending confirmation.
• Congress expressly authorized deduction of the trustee’s fee upon non-confirmation in Chapter 12 (11 U.S.C. § 1226(a)) and Subchapter V of Chapter 11 (11 U.S.C. § 1194(a)), but not in Chapter 13. The omission is meaningful.
• The Second Circuit aligns with the Seventh, Ninth, and Tenth Circuits: Marshall v. Johnson (7th Cir. 2024), Matter of Evans (9th Cir. 2023), and In re Doll (10th Cir. 2023), each holding that no retention of the percentage fee is permitted absent confirmation.
• Judgment: Reversed and remanded with instructions to grant Soussis’s disgorgement motion.

Analysis

Precedents Cited and Their Role

• Harris v. Viegelahn, 575 U.S. 510 (2015): Although addressing conversion from Chapter 13 to Chapter 7 after confirmation, Harris underscores that undistributed plan payments typically revert to the debtor in certain transitions. The Second Circuit uses Harris to illuminate the broader structure in which trustees hold plan funds and do not receive compensation absent distributions “under the plan.”
• Siegel v. Fitzgerald, 596 U.S. 464 (2022): Provides background on the U.S. Trustee system, standing trustees, and the administrative design of bankruptcy, reinforcing the statutory framework governing trustee compensation and supervision.
• In re Doll, 57 F.4th 1129 (10th Cir. 2023), cert. denied, 144 S. Ct. 1001 (2024): Holds that the trustee must return all pre-confirmation payments, including any collected percentage fee, where no plan is confirmed. The Second Circuit adopts Doll’s core reasoning in reading § 1326 to control the treatment of pre-confirmation payments and to limit § 586(e).
• Matter of Evans, 69 F.4th 1101 (9th Cir. 2023), cert. denied, 144 S. Ct. 1004 (2024): Same bottom-line rule as Doll; confirms circuit alignment that “collect” in § 586(e)(2) does not override § 1326’s refund mandate.
• Marshall v. Johnson, 100 F.4th 914 (7th Cir. 2024): Aligns with Evans and Doll; emphasizes statutory text and absence of an express Chapter 13 exception allowing retention of the fee on non-confirmation.
• United States v. Rowland, 826 F.3d 100 (2d Cir. 2016) and United States v. DiCristina, 726 F.3d 92 (2d Cir. 2013): Articulate the Second Circuit’s approach to statutory interpretation—plain meaning informed by context, and recourse to legislative history if ambiguity persists.
• Andrus v. Glover Constr. Co., 446 U.S. 608 (1980): Canon of negative implication—when Congress enumerates specific exceptions, courts generally should not infer additional unenumerated exceptions.
• United States v. Lockhart, 749 F.3d 148 (2d Cir. 2014), aff’d, 577 U.S. 347 (2016): Discusses grammatical canons (last antecedent vs. series-qualifier), relevant to parsing “not previously paid and not yet due and owing to creditors pursuant to paragraph (3)” in § 1326(a)(2).
• SEC v. Govil, 86 F.4th 89 (2d Cir. 2023): Anti-surplusage canon—avoid reading statutes in a way that renders terms superfluous. Applied to preserve meaning of the administrative-expense deduction clause in § 1326(a)(2).
• Vincent v. The Money Store, 736 F.3d 88 (2d Cir. 2013): The court surveyed dictionary definitions of “collect,” supporting the conclusion that “collect” can mean “gather/receive,” not necessarily “keep,” leaving room for ambiguity in § 586(e)(2).
• Lamie v. U.S. Trustee, 540 U.S. 526 (2004): Courts should not read absent words into statutes; supports rejecting a judicial gloss that “collect” implies “collect and keep.”
• Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Tr., 508 U.S. 602 (1993): Legislative purpose as an interpretive aid; used in harmonizing Chapter 13’s structure with trustee compensation policies.

Legal Reasoning

1) The text of § 1326(a): “Payments … proposed by the plan” include the trustee’s percentage fee

The linchpin is § 1326(a)(2): when no plan is confirmed, “the trustee shall return any such payments … to the debtor,” subject only to specified deductions. The “payments” are those “proposed by the plan” in § 1326(a)(1). Because 28 U.S.C. § 586(e)(2) requires the trustee to “collect” the percentage fee “from all payments received … under plans,” the fee is carved out of the debtor’s plan payments. Logically, then, it is part of the “payments” that § 1326(a)(2) commands the trustee to retain pre-confirmation and to return upon non-confirmation.

Section 1326(b) reinforces this reading by fixing the timing: trustee fees are paid “before or at the time of each payment to creditors under the plan.” If no plan is confirmed, there can be no distributions “under the plan,” so § 1326(b) does not contemplate paying the trustee’s fee in a non-confirmation scenario. The ordinary sequence is: hold pre-confirmation funds; if confirmation occurs, pay the trustee and creditors; if not, return the funds (with only enumerated deductions).

2) The limited exceptions in § 1326(a)(2) do not include the percentage fee

Congress expressly permitted two deductions before refunding pre-confirmation payments:

• Amounts “previously paid” or “due and owing to creditors pursuant to paragraph (3)”—a cross-reference to § 1326(a)(3), which concerns court-modified pre-confirmation payment obligations and, in context with § 1326(a)(1)(B)-(C), captures payments debtors make directly to certain creditors pre-confirmation (e.g., leases and adequate protection). The trustee’s fee is neither “to creditors” nor connected to a § 1326(a)(3) order.
• “Any unpaid claim allowed under § 503(b)” (administrative expenses), which does not include the standing trustee’s percentage fee. Section 326(b) expressly excludes standing trustees from § 330 compensation; by extension, the standing trustee’s fee is not a § 503(b) administrative expense.

Applying the Andrus canon, the presence of these explicit exceptions implies the exclusion of others. If Congress meant to allow trustees to deduct their percentage fees from pre-confirmation refunds in Chapter 13, it knew how to say so—as it did in Chapter 12 (§ 1226(a)) and Subchapter V (§ 1194(a)).

The anti-surplusage canon further supports this reading: if “payments” to be returned excluded administrative expenses and trustee fees from the start, the clause authorizing deduction of § 503(b) administrative expenses before the return would be superfluous. Reading “payments” to include both § 503(b) administrative expenses (deductible) and the trustee’s percentage fee (not deductible) preserves the function of every clause.

3) Interpreting § 586(e)(2): “Collect” is ambiguous; read with § 1326(a), it means collect and hold provisionally

Standing trustees “shall collect” their percentage fees “from all payments received … under plans.” The word “collect” can mean “gather/receive” or “gather and keep.” Because the term is reasonably susceptible to both meanings in context, the Second Circuit deems it ambiguous. Reading § 586 in pari materia with § 1326 resolves the ambiguity: a trustee may collect the fee component from plan payments, but must retain it pending confirmation and return it if no plan is confirmed.

This reading aligns with the trustee compensation scheme: standing trustees are not paid on a case-by-case time-and-effort basis (as ad hoc trustees are under § 330), but systemically through a percentage of plan payments actually distributed “under the plan.” In years when payments are high, trustees collect more; when lower, they collect less; and budget adjustments can recalibrate percentage rates mid-year to ensure reasonable compensation without windfalls.

4) Cross-chapter comparison: Congress knew how to authorize fee deductions—and did so elsewhere

The court’s comparative textual analysis is decisive. Both Chapter 12 and Subchapter V contain pre-confirmation refund provisions copied from § 1326(a)(2) but with an additional express instruction allowing deduction of the trustee’s fee upon non-confirmation:

• 11 U.S.C. § 1226(a): return pre-confirmation payments “after deducting … the percentage fee” if a standing trustee is serving.
• 11 U.S.C. § 1194(a): return pre-confirmation payments “after deducting … any fee owing to the trustee.”

Congress repeatedly amended § 1326(a)(2) (1984, 1994, 2005) without adding a similar deduction for Chapter 13, even as it created explicit deductions in Chapter 12 (1986) and Subchapter V (2019). The omissions in § 1326(a)(2) are, therefore, purposeful and meaningful.

5) Policy consistency: Chapter 13’s “test period” and debtor protection

The legislative history shows that pre-confirmation payments were instituted to test feasibility and deter bad faith or unrealistic plans, not to augment trustee compensation. Making pre-confirmation payments reversible if plans fail balances two aims: promoting feasibility and discouraging strategic filings while protecting unsuccessful debtors from unnecessary losses.

Concern that trustees perform pre-confirmation work for no compensation misunderstands the standing trustee scheme. Compensation is not tied case-by-case to time expended; it is an annualized, percentage-based system adjusted through U.S. Trustee oversight to achieve adequate—but not excessive—compensation across a trustee’s docket.

Impact

1) Immediate practical consequences in the Second Circuit

• Standing Chapter 13 trustees must return all pre-confirmation payments, including any fee component previously “collected,” when no plan is confirmed, except for deductions expressly allowed by § 1326(a)(2): (a) amounts previously paid or due and owing to creditors pursuant to § 1326(a)(3), and (b) unpaid § 503(b) administrative expenses.
• Trustees should ensure accounting systems segregate pre-confirmation funds so that fee components can be promptly reversed and refunded upon dismissal/non-confirmation.
• U.S. Trustee budgeting and mid-year percentage adjustments remain available to offset the impact of non-confirmed cases on trustee compensation.

2) Litigation and case administration

• Expect more routine disgorgement motions (or objections to final reports) in cases dismissed pre-confirmation where trustees previously retained fees.
• Debtors’ counsel should review final trustee reports closely and, if necessary, object to any retention inconsistent with Soussis.
• Creditors should recognize that pre-confirmation funds held by the trustee will not be diminished by trustee fees when cases fail; those funds will be returned to debtors unless one of the narrow § 1326(a)(2) exceptions applies.

3) Doctrinal consolidation nationally

• This decision brings the Second Circuit into line with the Seventh, Ninth, and Tenth Circuits, increasing nationwide uniformity and reducing forum-dependent outcomes on this issue.
• Given the Supreme Court’s denial of certiorari in Evans and Doll, and the growing circuit consensus, further high-court review appears unlikely in the near term.

4) Trustee systems and the U.S. Trustee Handbook

• The Department of Justice’s Handbook for Chapter 13 Standing Trustees instructs trustees to reverse fee collections if controlling law so requires. Soussis now supplies that controlling law within the Second Circuit.
• Trustees should standardize practices to “collect-and-hold” pre-confirmation fee allocations and reverse them automatically if confirmation does not occur.

5) Open edges and guardrails

• Direct-pay pre-confirmation obligations: Amounts a debtor pays “directly to” certain creditors (e.g., adequate protection or personal property lease payments) are not trustee “payments received” and may be excepted from refund only if they fall within the “previously paid … to creditors pursuant to paragraph (3)” or “due and owing” carve-outs.
• Dismissal vs. conversion: This case concerns dismissal pre-confirmation. Post-confirmation conversions are governed by Harris, and many courts treat undistributed funds upon dismissal as subject to § 349(b)(3)’s “revesting," often resulting in return to the debtor in Chapter 13 as well, depending on local practice.

Complex Concepts Simplified

• Standing trustee: A trustee appointed by the U.S. Trustee to administer a large volume of Chapter 13 cases in a district. Paid by a percentage fee taken from payments the trustee actually receives and distributes under confirmed plans.
• Pre-confirmation payments: Payments a Chapter 13 debtor must start making to the trustee within 30 days of filing a plan. The trustee must “retain” these until confirmation or denial.
• Confirmation: Court approval that the Chapter 13 plan meets statutory requirements; only after confirmation does the trustee distribute funds “under the plan” and take the percentage fee “before or at the time” of each distribution.
• Percentage fee: The trustee’s statutory compensation (capped by statute) as a percentage of payments the trustee receives and distributes. Set annually by the Executive Office for U.S. Trustees, and subject to budget oversight and adjustment.
• § 503(b) administrative expenses: Priority costs of administering the case (e.g., debtor’s attorney’s fees, ad hoc trustee fees), payable ahead of creditor distributions. Standing trustees’ percentage fees are not § 503(b) administrative expenses.
• Adequate protection: Payments to certain secured creditors to protect against depreciation of collateral before confirmation; sometimes paid directly by the debtor, and carved out of refunds under § 1326(a)(2) only if previously paid or “due and owing … to creditors pursuant to paragraph (3).”
• “Collect” (in § 586(e)(2)): Means the trustee may gather/receive the fee component from plan payments but, read with § 1326(a), must hold it provisionally and return it if plan confirmation never occurs.
• Ad hoc trustee vs. standing trustee: An ad hoc trustee is appointed for a specific case and compensated under § 330 based on “reasonable” fees for actual services (subject to caps). A standing trustee’s compensation is percentage-based, not time-based.

Conclusion

In re: Soussis establishes a clear and administrable rule in the Second Circuit: when a Chapter 13 case ends without plan confirmation, the standing trustee must return all pre-confirmation payments, including any amounts collected toward the trustee’s percentage fee, except for the narrow deductions Congress explicitly enumerated in § 1326(a)(2). The court’s reasoning harmonizes § 1326(a) and § 586(e)(2), respects Congress’s deliberate cross-chapter choices (contrasting § 1326(a) with § 1226(a) and § 1194(a)), and remains faithful to the policy design of Chapter 13’s pre-confirmation “test period.”

The decision aligns the Second Circuit with the Seventh, Ninth, and Tenth Circuits, creating a strong multi-circuit consensus and reducing legal uncertainty for trustees, debtors, and creditors alike. Practitioners should expect routine reversal of pre-confirmation fee withholdings upon non-confirmation and should adapt accounting and litigation practices accordingly. As a practical matter, Soussis will return more funds to debtors in unsuccessful Chapter 13 cases, while trustee compensation remains safeguarded through systemic budgeting and percentage adjustments rather than case-specific retentions in failed plans.

Key takeaways:

• Section 1326(a)(2) controls the disposition of pre-confirmation payments; the trustee’s percentage fee is part of those “payments … proposed by the plan.”
• Absent confirmation, the fee must be refunded; § 586(e)(2) does not authorize “keep” upon mere “collect.”
• Congress knew how to authorize retention in other chapters and did so explicitly; the omission in Chapter 13 is decisive.
• Policy coherence is preserved: pre-confirmation is a reversible feasibility test, not a revenue source for trustee compensation in failed cases.