Reimbursement of Advances for Pre-Petition Fees and Costs in a Chapter 13 Bankruptcy
By James J . Haller , Esq . Haller Law Lincolnshire , Illinois
Can your firm be reimbursed for fees and costs paid prior to filing a chapter 13 bankruptcy ? It has become common in some jurisdictions for attorneys to pay for the filing fees and costs for their clients . These cases are commonly called “ no money down ” cases . After the bankruptcy is filed the attorney then petitions the court for reimbursement as an administrative expense . This article explores this topic considering the recent decision of In re Riley , 2017 Bankr . LEXIS 3299 ( Bankr . W . D . La ., September 29 , 2017 ). A copy of this decision can be found here .
ISSUE :
In Riley Judge Kolwe was presented with issue whether the debtor ’ s attorney ’ s prefiling expenses for paying the filing fee and costs for ordering credit reports and credit counseling could be reimbursed as administrative expenses in the debtor ’ s chapter 13 bankruptcy . This review was spurred by a change in the district ’ s standing order with regard to flat fees in chapter 13 cases . The order is silent regarding whether the limit on the no-look fee includes any pre-petition expenses advanced by debtor ’ s counsel . It replaced a previous order which provided that the attorney ’ s flat fee was inclusive of any prepetition expenses advanced by the debtor ’ s attorney meaning debtor ’ s counsel were prohibited from requesting reimbursement of pre-petition expenses and costs . After the new standing order was entered , debtor ’ s counsel placed reimbursement of those expenses and costs in the proposed chapter 13 plan . The Trustee filed “ Comments ” to this plan asking the court to clarify whether reimbursements are allowed .
RULE :
The Bankruptcy Code allows a party to receive reimbursement for administrative expenses . 11 U . S . C . § 503 ( b ). The debtor ’ s attorney argued for allowance of fees under sections 503 ( b )( 1 ) and ( 2 ).
ANALYSIS :
Section 503 ( b )( 1 ) allows administrative expenses for “ the actual , necessary costs and expenses of preserving the estate …” 11 U . S . C . § 503 ( b )( 1 )( A ). Counsel argued that the filing fees and costs preserved the debtor ’ s estate . The court disagreed concluding that none of the costs benefitted the bankruptcy estate , only the debtor individually . The rationale was that a bankruptcy estate is only created upon the filing of a bankruptcy petition . See 11 U . S . C . § 541 . The court found that filing fees are due when the case is filed per 28 U . S . C . § 1930 ( a ), not afterward and therefore could not benefit the estate . Similarly , the court found that since the credit counseling must take place prior to filing the bankruptcy petition per 11 U . S . C . § 109 ( h ), it too could not benefit the bankruptcy estate and was a cost of the debtor , not the debtor ’ s estate . Finally , the court concluded that since ordering credit reports were not required by the Bankruptcy Code , the associated costs were also a personal cost to the debtor and not a benefit to the bankruptcy estate .
Section 503 ( b )( 2 ) allows administrative expenses for “ compensation and reimbursement awarded under 11 U . S . C . § 330 ( a ).” Section 330 ( a )( 4 ) ( B ) states that “ the court may allow reasonable compensation to the debtor ’ s attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtor and the other factors set forth in this section .” Counsel argued that the
30 CONSUMER BANKRUPTCY JOURNAL Winter 2018 National Association of Consumer Bankruptcy Attorneys