Lawyer Can’t Recover Costs Advanced in Chapter 13 Case

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By Daniel Gill

Lawyers who advance filing fees and other costs for their Chapter 13 debtor clients can’t recover those expenses through the payment plan, the U.S. Bankruptcy Court for the Western District of Louisiana held ( In re Riley , 2017 BL 347234, Bankr. W.D. La., No. 17-80108, 9/29/17 ).

In a decision of significance to the local bankruptcy bar, the Sept. 29 opinion by Judge John W. Kolwe held that the court’s standing order for “no-look” Chapter 13 fees doesn’t allow for the plan to reimburse the attorney for pre-petition costs he advanced for the debtor’s benefit.

Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period.

The bankruptcy judges for the Western District of Louisiana issued an amended standing order, effective Feb. 1, 2017, that authorizes debtors’ attorneys to be compensated up to a fixed amount without having to file an application for an award of fees.

That amended standing order removed previous language that said the no-look fee is inclusive of the filing fee and other advances.

Based on the removal of that language, attorney Thomas McBride caused his client Sharon Riley to file a Chapter 13 case and proposed plan that would reimburse McBride for the $310 filing fee, a $24 charge for required pre-bankruptcy credit counseling, and a $33 charge for a credit report which McBride advanced to the debtor as part of his “no-money-down” services.

The court wouldn’t allow the reimbursement of these advanced costs through the plan.

Because they were incurred before the bankruptcy was filed, the expenses weren’t for the “actual, necessary costs of preserving the estate,” it said.

The district’s standing order does allow debtors’ attorneys to be reimbursed expenses over the no-look fee, it said, but that is specifically and only for costs for service of a motion to modify the plan.

Attorneys have other possible means to deal with the problem, including demanding an advance retainer from the client debtor, the court said.

The court’s ruling doesn’t mean that attorneys can never be reimbursed any expenses through the plan. However, they can’t do so in “no-look” fee cases (except for serving a plan modification); the lawyers would have to file an application for court approval, the court said.

Riley was represented by Thomas C. McBride, Alexandria, La. The Chapter 13 trustee, Jon C. Thornburg, Alexandria, La., represented himself.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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