The Debtor argues in the Motion that if this case is dismissed before the attorney fees of the Debtor’s attorney are allowed and paid by the Trustee, the Trustee thereafter cannot pay the allowed attorney fees, but instead must pay all the funds on hand back to the Debtor. For this proposition, the Debtor cites Harris v.Viegelahn, 135 S. Ct. 1829 (2015).
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In light of how many Chapter 13 cases are dismissed prior to confirmation it only makes sense the attorney be paid for the work and expenses incurred during the case prior to dismissal. In addition, since almost all the work of an attorney on a Chapter 13 case is done prior to dismissal there is no reason that attorney shouldn’t receive his/her rightful compensation.
My only problem with that is, attorneys seem to take cases with no chance of confirmation. Why are so many cases being dismissed prior to confirmation? Infeasibility? Why are we filing so many infeasible plans? Just to make money off the client in peril? To get the last few dollars before their last hope explodes in their faces when the attorney should have told them in advance that bankruptcy can’t help everyone?
I don’t mean cases that are challenging. One of the trustees in Maryland once referenced bumblebees at a CLE. Bumblebees shouldn’t be able to fly, but they do, he said. We confirm bumblebee plans here. At the time, in that district, one could have a plan confirmed that required some luck, grace, hard work, extra jobs, and maybe a small lottery win. If the debtor was short $50 a month, a plan might allow for a lump sum payment at the end, allowing the debtor 3-5 years to get an extra job, or figure out how to get the extra money and save the house. I don’t mean those cases wherein a desperate plea to the judge or trustee might be required.
I don’t mean those plans that might require some negotiation with trustees and creditors. Or where the success of a plan depends on the success of a motion to value.
I mean those plans that should require us to say, “Essentially you’ll only be paying me $4000-$5000 to buy you some time – maybe 2-4 months. Possibly more if I file some continuances and we get lucky.” “You can’t even afford your mortgage, let alone your mortgage plus arrears. No way this gets confirmed.”
It’s okay to sometimes say “keep your money.” And it is okay if the attorney doesn’t get paid in those instances when s/he should’ve said it – but didn’t.
The reasoning in the case discussed is sound in every respect. The BK Judge correctly discerned the distinction to be made where a confirmed Chapter 13 case is converted to a Chapter 7, as in In re Harris as decided by the Supreme Court, and the case being dismissed prior to confirmation where the operative Code section is 1326(a)(2) not Section 348, as discussed. However, Section 330(a)(4)(B) carve out for compensation of officers is tied to employment under Section 327 as authorized by the Court; Debtor’s counsel are not retained as private attorneys under Section 327 nor under 330. Our compensation is regulated under Section 329 and Bankruptcy Rule 2016. However, I do agree that our compensation is nonetheless an Administrative Expense Priority under Section 503(b) thus allowed to be paid per Section 1326(a)(2).
Charles A. Maglieri, Esq.
This is a discussion of the Eastern District of Michigan opinion in In re Fairnot. Fairnot’s attorney is Charles Schneider, a leading Debtor Chapter 13 attorney in the EDM. The narrow rule of decision is LBR 9024-1 which is based on Michigan Court Rule 2.119 dealing with motions for reconsideration of orders. Fairnot had five adversary proceedings in his case, including one against the IRS. Within the time limit Debtor’s counsel filed an application for fees seeking $9,987.00 in fees and $55.12 in expenses. I sincerely hope this case is reported, although since it depends upon a local rule, I am not expecting this to happen. I agree with Mike Plotkin, the case makes perfect sense, since it depends upon statutory interpretation. Great news in the Eastern District of Michigan.