§ 136.7     Debtors’ Attorneys’ Fees after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 136.7, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

BAPCPA did not change the general principle that compensation allowed under § 330(a) to a debtor’s attorney in a Chapter 13 case is an expense of administration under § 503(b)(2). BAPCPA changed the priority of administrative expenses from first to second priority under § 507(a)(2), but this change in priority does not affect the entitlement of attorneys’ fees to full payment in a Chapter 13 case under § 1322(a)(2).1

[2]

One change to § 330 by BAPCPA may enhance the recovery of fees by debtors’ attorneys in Chapter 13 cases. BAPCPA amended § 330(a)(3)(E) to provide that in determining the amount of reasonable compensation to be awarded to a professional person, the court shall consider “whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field.”2 Demonstrated skill and experience in the bankruptcy field probably adds little to the compensation picture under § 330. But board certification is interesting. “Board certified” is not defined. The term seems broad enough to include state boards of professional responsibility where certification in specialties is offered and national certifying boards such as the American Board of Certification sponsored by the American Bankruptcy Institute.

[3]

The straightforward message is that board certification or other demonstration of skill and experience is a factor that bankruptcy courts should consider in awarding fees in Chapter 13 cases. It is reported anecdotally that board certification in consumer bankruptcy justifies a higher hourly rate or a higher flat fee in some districts in Chapter 13 cases. The BAPCPA amendments to § 330(a)(3)(E) are congressional recognition that board certification of a debtor’s attorney is relevant to the awarding of fees in Chapter 13 cases.

[4]

BAPCPA added three new sections to the Bankruptcy Code that regulate the relationship between debtors’ attorneys and their clients in Chapter 13 cases. Detailed elsewhere,3 the new Debt Relief Agency (DRA) rules in §§ 526, 527 and 528 will require many Chapter 13 debtors’ attorneys to change their contracting and advertising practices. When the DRA rules apply, the enforceability of a fee agreement between an attorney and a Chapter 13 debtor will depend on careful compliance with the new contracting and noticing requirements.

[5]

It is foreseeable that the new DRA rules will be tested in Chapter 13 cases in fee disputes when the claim is made that a debtor’s attorney is not entitled to fees because of failure to comply with a contracting or noticing responsibility in §§ 526–528. For example, under new § 528(a)(1), a DRA must execute a written contract with an assisted person not later than five days after the first date on which the DRA provided bankruptcy assistance services.4 Any contract for bankruptcy assistance between a DRA and an assisted person that does not comply with the five-business-day requirement is “void” and cannot be enforced by any person other than the assisted person.5 It is easy to imagine that a disgruntled debtor challenging the allowance of compensation to an attorney would raise any defect in the contracting process under the DRA rules as a bar to enforcement of the fee agreement.

[6]

It is possible that the new advertising requirements and restrictions in § 528 will have similar effects on the recovery of attorneys’ fees in Chapter 13 cases. Under new § 528(a) and (b), a DRA must “clearly and conspicuously disclose in any advertisement of bankruptcy assistance services” that the advertiser is a DRA and that “we help people file for bankruptcy relief,” and must disclose that assistance may involve bankruptcy relief. Under new § 526(c)(1), a failure of a DRA to comply with the “material requirements” of § 528 voids any contract between the DRA and an assisted person. When a debtor’s attorney is acting as a DRA in a Chapter 13 case, it would follow that any failure to comply with the new advertising requirements in § 528 could void any fee contract with the debtor.6 It seems odd, but distinctly possible, that an error in advertising by a Chapter 13 debtor’s attorney could be the basis for the denial of fees in Chapter 13 cases without regard to whether a particular debtor was even aware of the advertising.

[7]

A footnote to the treatment of attorneys’ fees after BAPCPA is the odd treatment of attorneys’ fees by the rules drafters in Official Form B22C. All Chapter 13 debtors are required to file a new Official Form B22C that attempts to be a statement of current income, a calculation of commitment period and a calculation of disposable income.7 For many reasons, the current version of Official Form B22C falls short of these goals. For Chapter 13 debtors with current monthly income (CMI) greater than applicable median family income, Parts III–VI of Official Form B22C mimic the determination of disposable income in accordance with § 707(b)(2)(A) and (B).8 Among the many deductions and adjustments to CMI that are allowed on the way to disposable income, there is no specific deduction in Official Form B22C for debtors’ attorneys’ fees. The Committee Notes explain this omission:

The Chapter 13 form does not provide a deduction from disposable income for the Chapter 13 debtors’ anticipated attorneys’ fees. There is no specific statutory allowance for such a deduction, and none appears necessary. Section 1325(b)(1)(B) requires that disposable income contributed to a Chapter 13 plan be used to pay “unsecured creditors.” A debtor’s attorney who has not taken a security interest in the debtor’s property is an unsecured creditor who may be paid from disposable income.9
[8]

The Committee Note accurately relates that debtors’ attorneys in Chapter 13 cases typically are unsecured creditors. After BAPCPA reconfigured the disposable income test in § 1325(b), the fees of debtors’ attorneys may indeed be paid from disposable income.10 But the statement in the Committee Note that there is “no specific statutory allowance” for a deduction of debtors’ attorneys’ fees in the disposable income calculation is not correct.

[9]

BAPCPA did not change the priority status of attorney compensation in Chapter 13 cases. Compensation allowed to a debtor’s attorney under § 330(a) is an administrative expense under § 503(b)(2) and that administrative expense becomes a second priority under § 507(a)(2) entitled to full payment through the Chapter 13 plan under § 1322(a)(2).

[10]

For Chapter 13 debtors with CMI greater than applicable median family income, § 707(b)(2)(A)(iv) provides that “amounts reasonably necessary to be expended—” include 1/60th of the debtor’s expenses “for payment of all priority claims.”11 This is a specific statutory allowance of debtors’ attorneys’ fees as a deduction from CMI in the calculation of disposable income for a Chapter 13 debtor with CMI greater than applicable median family income. Notwithstanding the Committee Note, a Chapter 13 debtor with CMI greater than applicable median family income should include anticipated attorneys’ fees as priority claims at Line 49 of Official Form B22C.12

[11]

The Committee Comment raises a different point about the payment of attorneys’ fees after BAPCPA. As reformulated by BAPCPA, the disposable income test calculates the amount that must be paid to unsecured creditors to accomplish confirmation under § 1325(b).13 Following the statutory directive, for Chapter 13 debtors with CMI greater than applicable median family income, priority claims for debtors’ attorneys’ fees—and all priority debts—are deducted from CMI to determine the amount of disposable income available for distribution to unsecured creditors. But then those same unsecured priority debts are paid from disposable income—reducing the amount of disposable income that will be actually paid to nonpriority unsecured creditors. This outcome is true to the strange mathematics of the disposable income test as reformulated by BAPCPA.


 

1  See §§ 294.1 [ Debtors’ Attorneys’ Fees ] § 136.6  Debtors’ Attorneys’ Fees before BAPCPA and 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA.

 

2  11 U.S.C. § 330(a)(3)(E).

 

3  See § 366.1 [ WARNING! You Are a Debt Relief Agency ] § 4.1  WARNING! You Are a Debt Relief Agency.

 

4  11 U.S.C. § 528(a)(1), discussed in § 366.1 [ WARNING! You Are a Debt Relief Agency ] § 4.1  WARNING! You Are a Debt Relief Agency.

 

5  11 U.S.C. § 526(c)(1), discussed in § 366.1 [ WARNING! You Are a Debt Relief Agency ] § 4.1  WARNING! You Are a Debt Relief Agency.

 

6  See 11 U.S.C. § 101(3), discussed in § 366.1 [ WARNING! You Are a Debt Relief Agency ] § 4.1  WARNING! You Are a Debt Relief Agency.

 

7  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income, 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation and 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

8  See § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

9  Committee Note, Official Form B22C.

 

10  See 11 U.S.C. § 1325(b), discussed in § 494.1 [ Projected Disposable Income ] § 101.1  What Do Unsecured Creditors Get?.

 

11  11 U.S.C. § 707(b)(2)(A)(iv), discussed in § 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1  Total Priority Debts and Divide by 60.

 

12  See § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

13  See 11 U.S.C. § 1325(b)(1)(B), discussed in § 494.1 [ Projected Disposable Income ] § 101.1  What Do Unsecured Creditors Get?.