Blogs

Attorney’s Administrative Expense For Allowed But Unpaid Fees is Subject to Chapter 13 Discharge

By Karl Johnson posted 02-25-2019 09:27 AM

  
​BANKRUPTCY BULLETIN
Editors-in-Chief
Karl Johnson, Hellmuth & Johnson, PLLC
Jeffrey Klobucar, Bassford Remele, P.A.

 Contributing Editor: Karl Johnson, Hellmuth & Johnson, PLLC
Judge_Ridgway___In_re_Jaworski.pdf

            In In re Jaworski, BKY No. 13-43296-MER (Nov. 30, 2018), Judge Ridgway held that an attorney’s administrative priority claim for allowed but unpaid fees does not survive a chapter 13 discharge. More than a year after the debtors filed their voluntary petition under chapter 13, the debtors’ modified plan was confirmed with an estimate of $5,000 for attorney fees to be paid through the trustee.

            More than a month after the debtors made their final payment, the trustee filed a motion to compel the attorney to submit an application for fees, stating that the trustee was holding $5,000 for attorney fees and a small amount of additional funds that had not yet been distributed to creditors. The trustee stated that the attorney’s failure to submit a fee application delayed the trustee’s ability to file (1) a final report to close the case and (2) a motion to modify the plan to allow the trustee to distribute funds on hand to other creditors.

            After a hearing and additional delays, the attorney finally submitted his application for fees on the same day that the debtors received their discharge. The fee application showed total fees and expenses of $17,527.54, stated that the debtors had already paid the attorney $3,408, and requested $14,071.56 in net compensation. The trustee objected that (1) he had only $5,335.08 on hand after paying unsecured creditors, (2) $1,276 of the amount requested was for work performed outside the statute of limitations for fees, and (3) an order allowing the full amount requested would allow the attorney to seek $8,784.06 from the debtors after their discharge.

            The court rejected the attorney's arguments that this case reflected his common practice, that filing timely fee applications would cause his clients’ cases to be dismissed, that including fees in the plans would require his clients to have unaffordable plan payments, and that the clients had entered into voluntary agreements to pay him post-discharge.

            The court began its discussion by noting that 11 U.S.C. §§ 1322(a)(2), 507(a)(1), 303(a)(1), and 303(a)(2) collectively require that allowed attorney fees be both provided for in the plan and paid in full under the terms of the chapter 13 plan. Because a confirmed plan binds all parties and controls the relationship between the debtors and the attorney, a previously undisclosed voluntary agreement between the debtors and the attorney has no significance. Absent plan language providing otherwise, any attorney fees that remain unpaid are subject to discharge upon the debtors’ completion of the plan. Ultimately, the court allowed fees and expenses limited to the amount of funds in the attorney’s trust account and the funds the trustee had on hand because any amount beyond that was already discharged.

0 comments
5 views

Permalink