Bankruptcy Judge Janice Miller Karlin of Topeka, Kan., wrote a 107-page opinion with a rousing endorsement of the right of indigents to file chapter 13 petitions when they need bankruptcy relief but cannot pay chapter 7 lawyers’ fees up front.
In one opinion, she dealt with 10 chapter 13 cases of consumers who were “impoverished and struggling to meet monthly financial obligations.” They were all below median income and lacked the $1,800 to pay an attorney in advance of filing their chapter 7 petitions, under which they presumably would have been entitled to discharges without losing property.
Instead, they filed under chapter 13 so that they could pay the $3,100 in attorneys’ fees in installments over 36 months, along with the chapter 13 trustees’ fees and the $310 filing fees. The U.S. Trustee objected to confirmation, contending that the debtors could not prove the plans were filed in good faith unless they could each show “special circumstances” justifying a “fee-only” chapter 13 plan.
Citing the litany of problems that indigents face, Judge Karlin said that “this real world sometimes requires bankruptcy, even if the debtor cannot save enough to pay the up front attorney’s fees required to file chapter 7.”
The U.S. Trustee relied on the Eleventh Circuit’s Brown decision from 2012, holding that a similar plan “was for the benefit of the lawyer and not in the best interest of the debtor.” However, Judge Karlin said the Eleventh Circuit looked at the totality of the circumstances and adopted no per se test.
In the First Circuit’s Puffer decision in 2012, the appeals court claimed to erect no categorical barrier to “fee-centric” chapter 13 cases. The Boston forum nonetheless required the debtor to prove “special circumstances” while shouldering a “heavy burden.” Judge Karlin said “myriad” other courts have also considered the issue, with varying results.
Although not on point, Judge Karlin said that Tenth Circuit cases do not require special circumstances and do not impose a heavy burden on the debtor. Instead, she looked at each plan and the debtor’s income to determine whether the plan was feasible and fees could be paid in installments.