Case No. 10-00821.United States Bankruptcy Court, D. Columbia.
March 1, 2011
MEMORANDUM DECISION AND ORDER RE MOTION TO APPROVE SALE AND ITS PROVISION FOR PAYMENT OF SECTION 506(c) PROCEEDS TO ONLY THE TRUSTEE’S FEES AND EXPENSES
S. TEEL JR., Bankruptcy Judge
The trustee has filed a motion to approve a sale of estate property to the landlords of the debtors’ premises and for approval of a settlement of claims held by those landlords against the estate, including secured claims. The consideration the landlords are paying includes a $30,000.00 “Cash Payment.” The order approving the sale would direct that “$30,000.00 of the Cash Payment represents a carveout pursuant to 11 U.S.C. § 506(c) and may be applied by the Trustee towards his fees and expenses.” (Emphasis added.)
Some decisions hold that a § 506(c) surcharge recovery cannot properly be paid to an individual administrative creditor, but can only be recovered for the estate’s benefit. See
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Ungaretti Harris LLP v. Steinberg (In re Resource Tech. Corp.), 356 B.R. 435, 444-45 (Bankr. N.D. Ill. 2006); see also Ford Motor Credit Co. v. Reynolds Reynolds Co. (In re JKJ Chevrolet, Inc.), 26 F.3d 481, 484 (4th Cir. 1994) (surcharge is payable to the estate, “as an unencumbered asset for distribution to the unsecured creditors . . . [p]ursuant to the distribution rules of § 726(a) [and] the priority rules of . . . § 507”).
It is thus
ORDERED that the trustee show cause at the hearing tomorrow or beforehand why the court ought approve a provision for a carveout of § 506(c) only for the benefit of the trustee’s fees and expenses (as opposed to the proceeds of the § 506(c) surcharge being available for payment of all chapter 7 administrative claims on a pro rata basis in accordance with the priority rules of § 507).
The document below in hereby signed.