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Chapter 7 Counsel Cannot Charge More for Postpetition Fee Arrangements

By Karl Johnson posted 01-28-2022 09:03 AM

  
BANKRUPTCY BULLETIN

 

In In re Ralph, Case No. 21-31428 (Bankr. D. Minn. Dec. 13, 2021), Judge Fisher took a first step toward addressing whether consumer bankruptcy attorneys may enter into arrangements with their chapter 7 clients to receive payment post-petition.  The fee arrangement at issue provided that the debtor would pay the attorney no fees pre-petition and instead would pay $2,497 post-petition in twelve monthly installments.  The record included evidence that if the Debtor instead paid the fee in full pre-petition, the fee would have been less than $2,497.  Judge Fisher held that, as a general matter, “fees paid over time post-petition which are greater than what would be charged as a lump sum pre-petition are unreasonable.”  Despite this holding, Judge Fisher left the fee arrangement intact because there had been no clear guidance in place. 

This holding tracked In re Allen, a recent decision by the Bankruptcy Appellate Panel for the Eighth Circuit.  628 B.R. 641 (B.A.P. 8th Cir. 2021). Like the B.A.P. in In re Allen, Judge Fisher declined to reach the substance of whether bifurcated fee arrangements are per se impermissible.  Instead, he briefly surveyed the split of authority on this and related issues, and noted the new procedure required in this district by the Bankruptcy Court’s recent en banc administrative order requiring attorneys to file an application for approval of fee arrangements that include a post-petition payment.  Post-Pet. Attorney’s Fee Arrangements in Chapter 7 Cases, In re Administrative Orders and Amendments to Local Rules and Forms, No. 21-00401 (Bankr. D. Minn. Nov. 8, 2021) (en banc), Dkt. No. 3; Post-Pet. Attorney’s Fee Arrangements in Chapter 7 Cases, In re Administrative Orders and Amendments to Local Rules and Forms, No. 21-00401 (Bankr. D. Minn. Dec. 13, 2021) (amended en banc), Dkt. No. 6.

Although Judge Fisher’s ruling does not provide binding precedent for future decisions, the amended en banc order indicates that the bankruptcy judges in this district are closely watching this issue and coordinating to provide a consistent approach.


Co-Editors in Chief
Karl J. JohnsonTaft Stettinius & Hollister LLP
David M. TanabeWinthrop & Weinstine, P.A.

 

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