Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
An attorney who paid his client’s Chapter 13 filing fee isn’t entitled to reimbursement as an administrative expense ahead of unsecured creditors, the U.S. Bankruptcy Court for the Southern District of Georgia held March 28 ( In re Russell , 2017 BL 99072, Bankr. S.D. Ga., 16-40484-EJC, 3/28/17 ).
While a Chapter 7 debtor can seek a waiver of the filing fee based on certain income criteria, Congress didn’t provide for a waiver in a Chapter 13 case, Judge Edward J. Coleman, III, wrote.
A Chapter 13 debtor may pay the filing fee in installments, but there is no provision here for counsel to pay the fee and then request reimbursement through the debtor’s plan, the court said.
In Chapter 7 bankruptcy, a debtor’s nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors. Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property, but they must propose a plan that uses future income to repay all or a portion of their debts over a three-to five-year period.
Thomasena Russell obtained court approval to pay her $310 Chapter 13 filing fee in installments. When Russell was unable to pay, her attorney, Judson C. Hill, “advanced” the money and paid the fee on her behalf rather than seek an extension of time for her to do so.
Hill asked the court to reimburse him as an administrative priority claim, which means he would be paid ahead of other general unsecured creditors.
According to Hill, advancing the filing fee was “actual and necessary, and served to preserve the bankruptcy estate,” and that’s why he should get reimbursed as an administrative expense under Bankruptcy Code Section 503(a).
Under Russell’s Chapter 13 plan, she would make 60 monthly payments of $750 and pay unsecured creditors $1,000 but not less than zero percent of the total allowed unsecured claims. Russell has two secured claims totaling $29,429, six unsecured claims totaling $80,097, and Hill’s $310 priority unsecured claim.
The court rejected Hill’s administrative expense argument, concluding that his “advance” benefited the debtor personally by satisfying her obligation to pay the filing fee and didn’t provide any benefit to her estate.
The advance of a Chapter 13 filing fee also isn’t reimbursable under Section 330(a), which provides for the compensation of officers, the court said.
A debtor’s filing fee is the “cost of admission,” the court said. Allowing a debtor’s attorney to satisfy this obligation of the debtor and seek repayment as an administrative expense funded by the trustee “has the potential to push this cost onto creditors,” the court said. The Bankruptcy Code doesn’t contemplate such treatment of the filing fee, the court said.
Although Hill’s advance may give rise to a post-petition claim against Russell, it isn’t allowable under Section 1305, which addresses the filing and allowance of post-bankruptcy filing claims, the court said. The advance wasn’t “for property or services necessary for the debtor’s performance under the plan,” the court said.
Chief Judge Susan D. Barrett joined the opinion. Gastin & Hill represented Thomasena E. Russell; Trustee O. Byron Meredith, III, represented himself.
To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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