Chapter 13 Debtor’s Counsel Could Not be Reimbursed for Costs Advanced to Clients Since the Filing Fee, Credit Report Fees and the Like are Not Administrative Expenses

Chapter 13 Debtor’s Counsel Could Not be Reimbursed for Costs Advanced to Clients Since the Filing Fee, Credit Report Fees and the Like are Not Administrative Expenses

This case involves whether or not debtor’s counsel in Chapter 13 bankruptcy proceedings in this District will be reimbursed money advanced to their debtor clients for filing their bankruptcy petitions, taking required credit counseling course prior to filing bankruptcy, and for credit reports obtained by counsel prior to the petition being filed. Potentially, a debtor can file an application with the Bankruptcy Clerk of Court and pay the $310 filing fee in three installments. As for the credit report, the cost suggested by the parties in these proceedings is $33 and will be borne by the debtor prior to filing bankruptcy. The credit report is not mandatory, but assists the debtor and his/her counsel file the debtor’s financial statement of affairs. Another cost potentially borne by the debtor is $24 for credit counseling which is not only required, but jurisdictional.

The majority of the bankruptcy petitions are known as “no-money-down” bankruptcy cases, meaning that the debtor’s attorney agrees to advance the funds to pay the aforementioned fees with the understanding that the attorney will be reimbursed through the debtor’s confirmed plan. Indeed, most bankruptcy attorneys advertise as such.

Bankruptcy proceedings are a high volume practice; consequently many districts have instituted local rules which establish No-Look fees. Generally, the rules provide that “if the attorney charges no more than a given amount, the fee sought will be deemed presumptively reasonable under § 330 with no need to provide time records.”  No-Look fees, which permit “a presumptively reasonable” attorney fee that Chapter 13 debtor’s counsel could choose to accept in lieu of filing a formal fee application, were established in the District in 2010. The No-Look fees provide that the attorney’s fees payable under the order includes any prepetition expenses advanced by the debtor’s attorney. Consequently, a No-Look fee would prohibit an attorney from requesting reimbursement of advanced pre-petition expenses in addition to the fixed No-Look fee.

If this court were to determine that these advanced pre-petition fees are inclusive of the No-Look fee, the advanced fee total is inclusive of the No-Look fee which is paid out over a period of time after the Bankruptcy Court confirms the debtor’s plan; this has been the long-standing policy of the Western District regarding advanced costs and expenses.  If we determine that the advanced fees are reimbursable, the advanced pre-petition expenses would be an addition to the No-Look fee provided in the Standing Order, and paid out over a period of time after the Bankruptcy Court confirms the debtor’s plan.

Alternatively, Bankruptcy attorneys can opt out of the No-Look fee and file a Fee Application under § 503 or require the debtor to pay these expenses in advance of filing their bankruptcy petition.

The issues presented on appeal for review are as follows:

• Did the bankruptcy court err in holding that advances of filing fees, credit counseling fees, and credit report fees by debtor’s counsel in Chapter 13 are not reimbursable under 22 U.S.C. § 503 (b)(1)(A)?

• Did the bankruptcy court err in holding that advances of filing fees, credit counseling fees, and credit report fees by debtor’s counsel in Chapter 13 are not reimbursable under 11 U.S.C. § § 330(a) and 503(b)(2)?

• Did the bankruptcy court err in holding that the filing fee for a Chapter 13 case is not a post-petition expense?

• Did the bankruptcy court err in holding that the filing fee for a Chapter 13 case accrues pre-petition?

• Does the bankruptcy court abuse its discretion by denying reimbursement of court filing costs, credit counseling fees, and credit report fees advanced by debtor’s counsel in the context of a “No-Look” fee in a Chapter 13 case?

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