Cite as: Keith M. Lundin, Lundin On Chapter 13, § 36.26, at ¶ ____, LundinOnChapter13.com (last visited __________).
11 U.S.C. § 329 and Bankruptcy Rule 2016(b) require debtor’s counsel to disclose the fee arrangement with the debtor, the amount of payment promised, the amount paid at the petition, and the source of the compensation including the identity of any nondebtor who has contributed to payment of compensation. If part of the agreed-upon compensation was paid in advance of the filing, then the amount and the source of those funds must be stated. If debtor’s counsel has paid any referral fee or agreed to split or share compensation with anyone other than a law partner, the sharing agreement must be clearly explained in the disclosure.
There is no official form for disclosure of compensation.1 The commercially available Chapter 13 forms and software filing packages typically include a separate disclosure of compensation form. Bankruptcy Rule 2016(b) requires that the disclosure be filed with or within 15 days after the petition.
The attorney’s disclosure of compensation is in addition to the information required in question 9 of Official Bankruptcy Form 7, where the debtor must reveal what has been paid, promised or transferred to an attorney in connection with the case. Care should be taken that question 9 of Official Bankruptcy Form 7 and the Rule 2016(b) disclosure are consistent. Reported decisions in which Chapter 13 debtors’ attorneys have gotten in trouble over fees often cite some failure of disclosure under Bankruptcy Rule 2016.2
Bankruptcy Rule 2016(b) imposes a continuing duty of disclosure on every attorney for a debtor without regard to whether the attorney applies for compensation during the Chapter 13 case. Any payment or agreement after the initial 2016(b) disclosure must be revealed in a “supplemental statement” filed within 15 days of the undisclosed payment or agreement. This continuing duty of disclosure has snared too many debtors’ attorneys in Chapter 13 cases.3 Some reported decisions find safety in continuing disclosure: debtors’ counsel can avoid problems with respect to compensation in a Chapter 13 case by amending an inaccurate Rule 2016(b) disclosure before another party raises the issue.4
The 2016(b) disclosure is not an especially onerous duty in Chapter 13 cases, but it is required of every debtor’s attorney. The disclosure of compensation in Rule 2016(b) should be distinguished from the (detailed) application that must be filed under Rule 2016(a) if counsel seeks compensation or reimbursement of expenses from the Chapter 13 estate. That there are local rules or practices that excuse debtors’ attorneys in Chapter 13 cases from filing detailed time records when seeking compensation5 does not excuse a debtor’s attorney from filing the disclosure of compensation required in every Chapter 13 case by Bankruptcy Rule 2016(b).
1 There is a procedural form prepared by the Director of the Administrative Office of the United States Courts, Procedural Form B 203.
2 See §§ 294.1 [ Debtors’ Attorneys’ Fees ] § 136.6 Debtors’ Attorneys’ Fees before BAPCPA and 515.1 [ Debtors’ Attorneys’ Fees ] § 136.7 Debtors’ Attorneys’ Fees after BAPCPA. See, e.g., Clark v. LaBarge (In re Clark), 223 F.3d 859, 864 (8th Cir. 2000) (Debtor’s attorney denied fees, ordered to disgorge fees and sanctioned for claiming flat fee of $1,250 for the filing of Chapter 13 cases when a paralegal prepared and filed the documents and counsel met the clients for the first time at the meeting of creditors. “These actions, at a minimum, violate Rules 9011 and 2016.”); In re Jensen, No. 04-34567ELF, 2008 WL 2405023, at *1 (Bankr. E.D. Pa. June 13, 2008) (unpublished) (Frank) (Attorney who obtained postpetition mortgage to secure payment of legal fees without disclosing and without seeking court authorization committed “inexcusable breach of his obligations under the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.”Execution of mortgage was transfer of property of estate, and receipt of mortgage violated § 362(a)(4) and Bankruptcy Rule 2016(b).), reconsideration denied, 2008 WL 2550556, at *4 (Bankr. E.D. Pa. June 18, 2008) (unpublished) (Frank); McCullough v. Chambers, Nos. 98-6344 JB, 96-16524, 97-918, 2000 WL 502827 (E.D. Pa. Apr. 25, 2000) (unpublished) (Debtor’s counsel failed to reveal in the Bankruptcy Rule 2016 statement that the debtor paid $750 retainer within a year of the Chapter 13 case.); In re Laferriere, 286 B.R. 520 (Bankr. D. Vt. 2002) (Retainer for legal services in contemplation of a Chapter 13 petition that was not filed is subject to disclosure, review and disgorgement under Bankruptcy Rule 2017 when the debtors file a Chapter 7 case more than one year later and counsel fails to reveal the original retainer in the Rule 2016 disclosure.); In re Anderson, 253 B.R. 14 (Bankr. E.D. Mich. 2000) (On bankruptcy court’s orders to show cause, attorney’s Rule 2016(b) statements did not fully disclose actual fee agreement with Chapter 13 debtors justifying denial of fees and disgorgement of postpetition retainers. Rule 2016(b) statement disclosed $500 retainer but failed to disclose that $300 of the retainer was actually paid postpetition. Statement was ambiguous with respect to “minimum fee of $1,200” to be calculated at an hourly rate of $150 because court could not determine what services were included in the $1,200 minimum.).
3 See, e.g., In re Ramelah, No. 02-26185REF, 2008 WL 5411072 (Bankr. E.D. Pa. Oct. 14, 2008) (unpublished) (Fehling) (Disgorgement of entire fee ordered when attorney took fee for debtor’s second case from trustee’s refund in first case without disclosure and without court approval.); In re Patti, 293 B.R. 297, 298 (Bankr. D.R.I. 2003) (Rule 2016 statement that failed to reveal $1,000 paid by the debtor under a retainer agreement was a “serious breach of counsel’s obligation to report fully and accurately to the Court as to money received. . . . [A]s Grasso received additional compensation, he had a continuing duty to update the 2016(b) statement . . . . [T]hese disclosure problems are grounds for denial of all compensation.”); In re Argento, 282 B.R. 108, 113–14 (Bankr. D. Mass. 2002) (Fee request of $12,837 is reduced to $8,500 because attorney failed to amend 2016 disclosure to reveal postpetition payment from debtor and time entries were excessive. “The language of section 329(a) is clear. Counsel must disclose compensation they have received or expect to receive for services rendered or to be rendered in contemplation of any debt counseling or in connection with filing or conducting the bankruptcy. Importantly the disclosure must identify the source or sources of any actual or anticipated payments. Moreover the disclosure is mandatory without regard to whether an attorney applies to the Court for compensation. . . . Fed. R. Bankr. P. 2016(b) is equally clear . . . . [D]isclosure of compensation is an ongoing obligation. . . . In the instant case this provision warranted the postpetition filing of a supplemental statement to disclose the postpetition payments not otherwise disclosed.”); In re Whaley, 282 B.R. 38, 41–42 (Bankr. M.D. Fla. 2002) ($500 for conversion from Chapter 13 to Chapter 7 must be disgorged because counsel did not amend 2016 disclosure until after he was caught. “The system only works if debtors’ attorneys disclose all payments received from the debtors automatically and without reminding. Disclosure is mandatory, not permissive. . . . [T]he duty to disclose extends not only to the initial payments received by the debtor’s attorney but also to all undisclosed payments made to the attorney at anytime, either before or after the case is filed. . . . Mr. Baron violated his duty under Section 329 and Bankruptcy Rule 2016(b) to disclose the additional $500 he received from the debtor after this case was filed.”).
4 See, e.g., In re Gage, 394 B.R. 184, 196 (Bankr. N.D. Ill. 2008) (Squires) (Contempt not appropriate when attorney received fees above flat-fee contract but refunded excess and corrected Rule 2016 statement. Attorney “testified that the error in the instant Rule 2016 statement was the result of his failure to carefully review the document. While this certainly demonstrates carelessness on [attorney’s] part, it does not rise to the level of an abuse of the judicial process.”); In re Burke, 281 B.R. 367 (Bankr. S.D. Ala. 2001) (Debtor’s attorney avoided problems under Bankruptcy Rule 9011 by amending inaccurate disclosure of compensation before anyone raised the issue.).
5 See §§ 294.1 [ Debtors’ Attorneys’ Fees ] § 136.6 Debtors’ Attorneys’ Fees before BAPCPA and 515.1 [ Debtors’ Attorneys’ Fees ] § 136.7 Debtors’ Attorneys’ Fees after BAPCPA. See, e.g., Law Offices of David A. Boone v. Derham-Burk (In re Eliapo), 298 B.R. 392 (B.A.P. 9th Cir. 2003) (Attorneys signing the “Rights and Responsibilities Form” in the Northern District of California agree to accept fees subject to published maximums and need not file detailed time and services records required by Bankruptcy Rule 2016; attorneys seeking fees in excess of the maximums provided in the guidelines must comply with Bankruptcy Rule 2016 and file a detailed statement and disclosures.). See also In re Young, 285 B.R. 168, 173–74 (Bankr. D. Md. 2002) (“[T]his court finds that the purposes of Rule 2016(a) are satisfied without the filing of a separate document entitled application for compensation, where the fee is a flat fee, and is fully disclosed by the original Rule 2016(b) disclosure. . . . However, if the fee is not entirely a flat fee, but rather has an hourly rate or unliquidated feature, a formal application under Rule 2016(a) is required as a prerequisite to allowance as an administrative expense.”).