Bankruptcy Court Recognizes and Rewards Debtor’s Counsel for Time Spent Preparing Schedules

Bankruptcy Court Recognizes and Rewards Debtor’s Counsel for Time Spent Preparing Schedules

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Prior to this case the Debtors had filed three chapter 13 cases in quick succession from late 2015 to early 2016 all of which were dismissed without a confirmed plan. The debtors filed this chapter 13 case in March of 2019 and were originally represented by counsel. Counsel was forced to file an emergency petition to stay a state court hearing.  This was a skeleton petition without schedules, statement of financial affairs or the plan. Later, council move to withdraw as Debtors’ counsel which was granted.

Approximately ten days later, Debtors hired new counsel on an hourly fee basis agreeing to pay attorney time at $275.00 per hour and paralegal time at $110.00 per hour.  Over the course of the next four months, Debtors’ counsel billed approximately 22 hours in the case and his legal assistant billed about 19.5 hours.  Then, Debtors new counsel also filed a motion to withdraw.  After this was granted (over Debtors’ objection), new counsel filed a fee application seeking approval of $9,172.85.

The Debtors objected to the fees.  In particular they argued that it was excessive for counsel to spend approximately ten hours on bankruptcy schedules when the Debtors themselves had spent two to three hours on the material.

The Court also initially thought those fees were high at first blush. However, the Court rejected the Debtors’ argument.

Second, Debtors argued that it was excessive for Mr. Holmes to spend approximately ten hours on bankruptcy schedules when Debtors themselves had spent two to three hours on the material. This argument is unpersuasive; preparing a good set of schedules and a SOFA is technical work, and Debtors are not lawyers. See KOBA, 2019 WL 5584901, at *5 (overruling debtor’s principal’s objection that legal work at real estate closing could have been handled competently by a broker at a fraction of the cost). Debtors’ version of the paperwork is not in evidence, but the schedules ultimately filed by Mr. Holmes are substantial and appear to be thorough. Debtors listed 81 unsecured creditors in their Schedule E/F. Mr. Holmes filed a substantially longer amended mailing list. Mr. Holmes testified that he took the time to include creditors from Debtors’ prior dismissed bankruptcy cases to make sure Debtors received the full benefit of their “fresh start.” The Court finds that the time billed for work on Debtors’ schedules and SOFA was reasonable and necessary to the administration of this case.

In re Guajardo, No. 19-10540-ta13, at 6 (Bankr. D.N.M. Feb. 14, 2020).

However, the Court did recognize that some time entries were for non-compensable clerical work.

One exception to the necessity/benefit analysis is clerical work. While necessary in every legal proceeding, clerical work cannot reasonably be passed onto clients or the estate and should instead be absorbed by the firm as overhead. (Citations omitted.) Filing and serving documents on the Court through CM/ECF is non-compensable clerical work. (Citation omitted.)  Further, in the event of any dispute or lack of clarity as to the nature of a billing entry, “[t]he party requesting compensation from the estate bears the burden of demonstrating that the requested fees are reasonable.” (Citation omitted.)

In re Guajardo at  7.

The Court applied the standards found at 11 U.S.C. § 330(a)

The key questions are whether the professional services were necessary and beneficial to the bankruptcy estate and whether the fees charged for those services are reasonable in amount. (Citations omitted.) In chapter 12 and 13 cases, the benefit can be to the debtor rather than the estate. Seee.g., In re Williams, 378 B.R. 811, 823 (Bankr. E.D. Mich. 2007) (§ 330(a)(4)(B) is an exception to the general rule that professionals’ services must benefit the estate to be compensable); In re Argento, 282 B.R. 108, 116 (Bankr. D. Mass. 2002) (same).

In re Guajardo at 5.  The opinion reviewed each of the factors in Section 330(a) and concluded that with minor adjustments, the fees charged were necessary, beneficial and reasonable.

Practice Pointers

  • Keep track of the time you spend on your cases. While bankruptcy courts generally allow flat fees for work performed, in the event you need to withdraw as counsel, your time records are vital for a fee application.
  • Avoid mixing compensable time with non-compensable time. The Guajardo court noted that there was an increase in billing entries that “seek to combine potentially legal or paraprofessional work, such as document finalization, with the clerical work of filing and serving documents. Debtor’s counsel must be careful not to bill the estate for clerical work.” In re Guajardo at 8 n. 9.
  • This opinion properly recognizes that preparation of schedules and the statement of financial affairs is technical legal work. Defend your fees as such.  These documents are not just fill in the blank forms.  Many questions involve complex legal issues that require extensive discussion and explanation for your clients.

A copy of the opinion is here:    In re Guajardo

© 2020 The National Association of Consumer Bankruptcy Attorneys

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