Judge Jaroslovsky: Debtors’ Attorneys Are Not Prohibited from Getting Fees When Chapter 13 Case is Dismissed Prior to Completion

Judge Jaroslovsky: Debtors’ Attorneys Are Not Prohibited from Getting Fees When Chapter 13 Case is Dismissed Prior to Completion

An attorney who substituted in as counsel for a Debtor applied for fees of $954.50. The new attorney cleaned up the mess made by Debtor’s prior counsel and assisted Debtor with a loan modification. The Court found the fees to be very reasonable.

However, the new attorney  asked the court for a provision in the order that “Any fees not paid as an administrative expense shall be paid directly by Debtor to Debtor’s counsel after plan completion.” While the court finds this request proper, it notes that some bankruptcy courts are citing Harris v. Viegelahn, 135 S.Ct. 1829, 191 L.Ed.2d 783 (2015) for the proposition that a Chapter 13 debtor’s attorney’s fees are never collectible outside the Chapter 13 case. The court therefore feels the need to explain the law as the court sees it.

The court begins by noting that the Supreme Court decision in Harris is not applicable to this situation. That case dealt with a case converted from Chapter 13 to Chapter 7. When a case is converted from Chapter 13 to Chapter 7, attorneys’ fees incurred before conversion are treated as prepetition debts pursuant to § 727(b) of the Bankruptcy Code and are therefore discharged along with all other debt. In re Fickling, 361 F.3d 172, 175 (2nd Cir. 2004). However, in a dismissed Chapter 13 case there is no discharge at all.

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