On May 13, 2019, the Fifth Circuit Court of Appeals ruled on an appeal stemming from several cases involving no-money-down chapter 13 business models, wherein the debtor’s attorney agrees to advance the costs of filing fees, credit counseling course fees, and credit report fees on behalf of the debtor. The case pitted the Bankruptcy Court for the Western District of Louisiana (represented by two chapter 13 trustees) against the chapter 13 debtor’s bar.
In 2017, the Bankruptcy Court for the Western District of Louisiana amended its standing order governing no-look chapter 13 fees. The new order removed language that prohibited separate reimbursement of pre-filing expenses. Prior to 2017 the standing order explicitly stated that any advances made by debtor’s counsel for pre-filing expenses were accounted for in the no-look fee amount and therefore not separately reimbursable.
Subsequently, debtors’ counsel advanced fees for filing, credit counseling and to obtain credit reports and requested reimbursement under the no-look fee system for compensation in addition to the no-look fee. The issue was brought to the court by request for clarification by a chapter 13 trustee. The bankruptcy court held that 1) the new standing order did not permit separate reimbursement for advanced fees, 2) 11 U.S.C. § 503(b)(1) did not require the mandatory reimbursement of those advances, and 3) even if debtors’ counsel elected to be paid by formal fee application (instead of the no-look fee) that reimbursement of advances could never be allowed under 11 U.S.C. § 330(a).
The district court affirmed the bankruptcy court. On appeal, the 5th Circuit addressed each of the bankruptcy court’s holdings.
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