Bankrupt Attorney Must Turn Over Fees to Ch. 7 Trustee

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By Diane Davis

Aug. 19 — An attorney who filed for bankruptcy protection must turn over to the Chapter 7 trustee $10,000 in payments that were made to him from a client for legal services, a bankruptcy court in Massachusetts held Aug. 17 ( In re Sylvia, 2016 BL 266762, Bankr. D. Mass., No. 15-10589-JNF, 8/17/16 ).

Judge Joan N. Feeney of the U.S. Bankruptcy Court for the District of Massachusetts concluded that the $10,000 in payments made after the bankruptcy filing were on account of pre-bankruptcy services and, thus, were property of the estate.

Debtor Edward J. Sylvia, Jr. maintains a law office in New Bedford, Mass. The debtor represented XL Foam, LLC, an affiliate of M.H. Stallman Company, Inc. in several legal matters, including a civil action in state court.

Under the terms of his engagement, Sylvia was paid hourly for his services and typically invoiced Stallman for services rendered on a monthly basis. Sylvia invoiced the Stallman Company after his bankruptcy filing for $291, $8,924, and $2,070 on various dates.

The debtor filed for Chapter 7 protection in which the debtor's nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors.

Chapter 7 trustee Debora Casey filed a motion for the debtor to turn over $10,000 which the debtor alleged he received from a client for legal services rendered prior to the commencement of his Chapter 7 case.

The debtor argued that these payments were on account of legal services rendered by him after the bankruptcy filing and not on account of pre-bankruptcy services.

“Earnings by an individual debtor for services performed after the commencement of a Chapter 7 case, however, are not property of the estate,” the court said, citing Bankruptcy Code Section 541(a)(6). The court noted that “[w]here the debtor is an attorney, income attributable to prepetition services is property of the estate.”

The court didn't find Sylvia's contention that the postpetition payments were made by Stallman for postpetition services to be credible. There was no evidence that Stallman and Sylvia discussed the application of any of the payments, or that Sylvia asked Stallman for a retainer for services going forward after his bankruptcy.

Sylvia continued his representation of Stallman in the state court lawsuit not because he received additional money but because the court and his client insisted that he continue with his representation, the court said.

Edward J. Sylvia, Jr., Edward J. Sylvia Jr. & Associates, New Bedford, Mass., represented himself as debtor; John Fitzgerald, Office of the US Trustee, Boston; Thomas P. Harrison, WaltersLacey LLP, Norwell, Mass., and David J. Reier, Posternak Blankstein & Lund LLP, Boston, represented Chapter 7 Trustee Debora Casey, Hingham, Mass.

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

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