Bankruptcy Court Allows Deduction of Debtor’s Attorney’s Fees in Means Test and Surveys Cases Allowing the Deduction.

Bankruptcy Court Allows Deduction of Debtor’s Attorney’s Fees in Means Test and Surveys Cases Allowing the Deduction.

Subtitle: “Administrative expenses are priority claims with benefits.”

Prior to filing bankruptcy, the Debtor hired NACBA member Jeffrey B. Kelly of the Law Office of Jeffrey B. Kelly, P.C. out of Rome, Georgia. Mr. Kelly successfully argued this case on behalf of the Debtor.

The Debtor agreed to pay Mr. Kelly $4,500.00 for representation in a chapter 13 bankruptcy. The Debtor filed a chapter 13 bankruptcy and the attorney’s fees were provided to be paid in the chapter 13 plan. The Debtor had above median income and therefore was required to complete and submit Official Form 122C-2 listing his allowable expenses and calculating his projected disposable income (“PDI”).

The Debtor’s Form 122C-2 listed his attorney’s fees as a line item deduction as a priority claim on line 35. With the attorney’s fees added as a deduction, Debtor’s monthly disposable income is $639.49 for a total PDI of $38,360.40 to pay non-priority unsecured creditors.

The Trustee objected to confirmation of the plan arguing that the Debtor may not include his attorney’s fees as an expense in line 35 or any place else on Form 122C-2. If the attorney’s fees expense is disallowed, then Debtor’s monthly disposable income becomes $714.49, which results in a total PDI of $42,869.40.

The Debtor made two arguments that he should be allowed to deduct his attorney’s fees. First, attorney’s fees are a valid deduction on his means test. Second, his attorney’s fee is an unsecured debt which must be paid from the PDI “pot” before unsecured creditors. Both arguments allow the “pot” to be reduced by the amount of the attorney’s fees.

The Bankruptcy Court examined each argument and surveyed the case law before making its ruling.

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