In a “no money down” bankruptcy, a debtor’s counsel cannot advance the filing fee plus the costs for credit counseling and a credit report while expecting to recover those expenses through a chapter 13 plan on top of a “no look” fee, at least in the Western District of Louisiana.
Previously, a standing order in the W.D. La. did not prohibit counsel from advancing the filing fee and other pre-petition costs. However, the standing order expressly said that any advances must be included in the no-look fee.
In January 2017, the district adopted a new standing order that altered the amount of no-look fees. However, it was silent about expenses, raising the question of whether debtors’ counsel could recover expenses in addition to no-look fees.
In light of the ambiguity, a debtor’s counsel submitted a chapter 13 plan where the filing fee and expenses for counseling and a credit report would be repaid to the lawyer from the debtors’ post-petition income. The chapter 13 trustee objected to the plan, prompting Chief Bankruptcy Judge John W. Kolwe of Alexandria, La., to rule in a test case that the no-look fee is inclusive of all expenses. He also held that the filing fee and the expenses were not expenses of administration under Sections 503(b)(1)(A) or (b)(2) or 330(a).
On appeal, District Judge James T. Trimble, Jr. of Alexandria, La., upheld Judge Kolwe on April 12, saying that Judge Kolwe’s “well-reasoned decision” is “just that — well reasoned.” Indeed, Judge Trimble’s opinion largely paraphrases Judge Kolwe, mostly suggesting without saying explicitly that he concurs. To read Judge Kolwe’s opinion, click here.
Contending that advances for the filing fee and expenses are reimbursable under a plan, the debtor’s counsel relied in part on Section 330(a)(4)(B). In chapter 12 and 13 cases for an individual, the subsection allows “reasonable compensation to the debtor’s attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtor . . . .”
Judge Trimble said that Section 330(a)(4)(B) shows how Congress “plainly intended” to permit compensation from the estate for services that benefit the debtor even though there is no direct benefit for the estate. He noted that the subsection refers to compensation but is silent with regard to expense reimbursement.
Judge Kolwe said that no section of the Code expressly authorizes an award of pre-petition expenses to debtor’s counsel. However, he cited some courts that have permitted recovery of expenses under Section 330(a)(4)(B).
According to Judge Trimble, Judge Kolwe departed from those cases and said that the no-look fee “is intended to be inclusive of all expenses and any amount over the no-look fee requires a formal fee application.”
With regard to the filing fee, Bankruptcy Rule 1006(b) gives the court discretion to allow payment in installments after filing. Allowing counsel to recover the filing fee under a plan would “eviscerate” the rule by taking away the court’s discretion to permit payment in installments, Judge Trimble said, paraphrasing Judge Kolwe.
Judge Trimble therefore held that the filing fee and expenses are not administrative expenses and are therefore not reimbursable to debtor’s counsel. Evidently, the decision means that chapter 13 cases can no longer be entirely no-money-down. Presumably, though, a debtor can still pay the filing fee in installments, but debtor’s counsel must either “eat” the expenses or have the debtors pay those costs out of their own pockets. Otherwise, debtor’s counsel only has an unsecured claim for the expenses.