In a “no-money-down” chapter 13 practice, the debtor’s counsel cannot obtain reimbursement of filing and credit-counseling fees on top of a “no-look” fee, according to Bankruptcy Judge John W. Kolwe of Alexandria, La.
Although Judge Kolwe was interpreting his district’s new local rule on no-look fees, his rationale would preclude reimbursement of a filing fee even if sought as part of a fee application under Section 330(a).
In his Sept. 29 decision, Judge Kolwe said that “virtually all” chapter 13 attorneys in his district file so-called no-money-down cases where the lawyer pays the filing fee, the credit-counseling fee, and the fee for a credit report. Advancing fees is helpful for cash-starved consumers who cannot afford the fees, let alone the pre-filing retainer for chapter 7, for which many debtors would be eligible if they could afford counsel’s retainer “up front.”
Until Feb. 1, 2017, the Western District of Louisiana explicitly provided that reimbursement for any filing or credit-counseling fees had to be included in the no-look fee. As a result, Judge Kolwe said, the prior local rule effectively forced the lawyers “to absorb those costs.”
Effective Feb. 1, the Western District’s new no-look rule has been silent about reimbursement of filing fees paid by counsel. As a result, lawyers began filing chapter 13 cases calling for payments under the plans to cover both the no-look fees and reimbursements of the filing, counseling, and credit-search fees.
With the chapter 13 bar participating, Judge Kolwe selected one debtor’s plan to test whether the new local rule would allow reimbursement of advanced fees on top of no-look fees. He concluded that chapter 13 counsel are not entitled to reimbursement of costs they advance to permit no-money-down filings.
First, Judge Kolwe ruled that counsel could not obtain reimbursement of the fees as an administrative expense under Section 503(b)(1)(A), because they are “prepetition expenses of the debtor, not the estate.” Furthermore, he said, the reimbursement obligation arose from the pre-petition retention agreement between the debtor and the attorney, not “from a transaction with the debtor’s bankruptcy estate.” In addition, the expenses advanced by the lawyer did “not provide a direct and substantial benefit to the estate.”
Similarly, the filing, credit-counseling and credit-search fees are not reimbursable under Sections 330(a)(4)(b) and 503(b)(2).
Quoting a Georgia bankruptcy court opinion from earlier this year, Judge Kolwe said that filing fees are not reimbursable because they are the debtor’s “cost of admission.” The cost of filing fees cannot be shifted to the estate unless the debtor obtains an order authorizing the payment of the filing fees in installments.