Counsel who filed an application for allowance of additional fees just as the chapter 13 debtors completed their plan payments had a valid claim, but one that was discharged and could not be paid as an administrative expense, according to District Judge Janet T. Neff of Grand Rapids, Mich.
The debtors paid unsecured creditors in full under their five-year chapter 13 plan. Previously during the case, the debtors’ counsel was paid more than $13,000 pursuant to four fee applications.
Two days after the chapter 13 trustee filed a report of plan completion, the debtor’s counsel filed a final fee application seeking an additional $650. Before a hearing on the fee application could be held, the bankruptcy court entered the discharge order.
Bankruptcy Judge John T. Gregg of Grand Rapids awarded counsel the $650 under Section 330(a) but held that it could not be paid as an administrative expense under Section 503. Judge Gregg also held that the claim, otherwise valid, was discharged under Sections 524(a) and 1328(a).
However, Judge Gregg said that his decision was not intended to preclude the debtors from paying the awarded fees voluntarily.
Counsel appealed and lost on every count in Judge Neff’s March 31 opinion.
The debtors’ attorney argued that nothing in the Bankruptcy Code or Rules, nor in local rules, establishes a deadline for fee applications in chapter 13 cases. Counsel also relied on In re Sweports, 777 F.3d 364 (7th Cir. 2015), where Circuit Judge Richard A. Posner held that the bankruptcy court retained residual jurisdiction to award fees to creditors’ committee counsel even though the chapter 11 case had been dismissed.
Since there was no longer an estate, Judge Posner said the bankruptcy court no longer had ability to compel payment. Nonetheless, and perhaps in dicta, Judge Posner said the committee’s counsel could sue the debtor in state court if the debtor did not pay the fees voluntarily.
In view of Sweports, Judge Neff framed the question as whether the lawyers had an administrative expense claim, not whether there was power to award fees.
Judge Neff agreed with Judge Gregg in concluding that, although the fee application was timely, the request for an administrative expense was not, because the “bankruptcy was completed” and no more payments could be made under the plan. It was also too late to amend the plan, Judge Neff said.
If fees could not be paid under the plan, debtors’ counsel wanted Judge Neff to rule that the fee award would survive discharge. The argument did not work, because the debtors had completed plan payments and received discharges.
Since counsel had written the plan to provide that their fees would be priority claims, it was too late to amend the plan to except the fee award from discharge.