Subchapter V: Early Termination Of A Trustee’s Services Under A Consensual Plan (§ 1183(c))

By Donald L. Swanson

A Subchapter V trustee has various duties established by statute (see 11 U.S.C. § 1183(b)).  Such duties are substantial and important, but most are concluded upon confirmation of a Subchapter V plan.   

Administrative Expense—Early Termination Savings

Of necessity, a Subchapter V trustee’s performance of statutory duties creates an administrative expense for the bankruptcy estate.  And Subchapter V trustees are compensated, as case-by-case trustees, on an hourly fee under § 330—unlike standing trustees in Chapter 12 and Chapter 13, who receive a percentage of funds they handle (see § 326(b)).

Early Termination—Statutory Provision

Accordingly, an early termination of a Subchapter V trustee’s services (i.e., shortly after confirmation of a plan) would be beneficial to everyone involved. 

And that’s precisely what Subchapter V provides, as to consensually confirmed plans.  Here’s how.

–“Termination” Provision

First, Subparagraph (c) of § 1183, titled “Termination of Trustee Services,” provides:

  • “In general.—If the plan . . . is confirmed under section 1191(a) of this title [i.e., consensually], the service of the trustee in the case shall terminate when the plan has been substantially consummated, except that the United States trustee may reappoint a trustee as needed . . . “; and
  • “Service of Notice of Substantial Consummation.—Not later than 14 days after the plan . . . is substantially consummated, the debtor shall file with the court and serve . . . notice of such substantial consummation.”

–“Substantial Consummation” Provision

Second, the definition of “substantial consummation” appears in 11 U.S.C. § 1101(2) as follows:

“(2) ‘substantial consummation’ means—

“(A) transfer of all or substantially all of the property proposed by the plan to be transferred”;

“(B) assumption by the debtor or by the successor to the debtor under the plan of the business or of the management of all or substantially all of the property dealt with by the plan”; and

“(C) commencement of distribution under the plan.”

Typically, in a Subchapter V plan, all three parts of this “substantial consummation” definition will be satisfied shortly after confirmation.  That means, after a consensual confirmation, the Subchapter V trustee’s role and services can terminate promptly, thereby creating a savings for the bankruptcy estate.

–Reappointment Provision

In the event the services of a trustee are needed after an early termination, § 1183(c)(2) provides for a trustee’s reappointment.

Benefit—For Debtors and Creditors Alike

Many Subchapter V provisions are primarily in the debtor’s interest (e.g., a discharge), and other Subchapter V provisions are primarily in the creditor’s interest (e.g., the “disposable income” requirement for confirmation).  But the early trustee termination provision, under a consensual plan, is designed to benefit both—it prevents the diversion of funds intended for creditors to the trustee’s administrative expense.  

Conclusion

Early termination of a Subchapter V trustee’s role and services, following confirmation, is one of the benefits of a consensual plan confirmation. 

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