Even though there was benefit only to the debtor and none to the estate, a chapter 13 debtor’s lawyer was entitled to compensation under Section 330(a)(4)(B), an exception to the so-called American Rule and to standards for compensation generally in bankruptcy cases.
The debtor filed a chapter 13 petition and confirmed a plan in short order. In his July 8 opinion, Bankruptcy Judge Robert L. Jones of Lubbock, Texas, said the lawyer would be paid a $3,700 “no look” fee for services in the case before confirmation.
After confirmation, the debtor’s former wife filed a nondischargeability complaint. The debtor’s counsel succeeded in persuading Judge Jones to dismiss the complaint on motion to dismiss. The debtor was never required to answer the complaint.
The debtor’s counsel filed an application for allowance of an administrative claim totaling $6,260 for services in the dischargeability adversary proceeding. The fees worked out to 15.65 hours at $400 an hour.
The chapter 13 trustee objected to the fee application for the adversary proceeding, claiming there was no benefit to the estate. Alleging that the services benefited only the debtor, the trustee also contended that the American Rule should apply to bar a payment that would reduce the recovery by creditors.
Judge Jones disagreed.
The outcome tuned on Section 330(a)(4)(B), which was added by the Bankruptcy Reform Act of 1994. It provides:
In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow 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 and the other factors set forth in this section.
Judge Jones said that the subsection “essentially creates an exception to the general rule that fees are compensable from the estate only if the services benefit the estate.” He cited the Collier treatise for the idea that defending the debtor in a dischargeability action aids the debtor in completing a plan.
Judge Jones said the services would be compensable only if they provided benefit, were reasonable and were necessary.
Judge Jones said that dischargeability was a core issue and that the services benefited the debtor and were “necessary” to the completion of the case.
The services were reasonable, because counsel spent less than 16 hours on a “novel issue” concerning “an obscure Texas divorce remedy.” The case demanded “significant skill” provided by an “experienced consumer bankruptcy attorney” sporting an “excellent reputation.” The judge was referring to Sam C. Gregory of Lubbock.
The services therefore were reasonable and necessary and provided benefit to the debtor.
The chapter 13 trustee nonetheless argued that the American Rule barred compensation that would come out of the pockets of creditors. The American Rule means that clients pay their own fees, win or lose.
Reliance on the American Rule was “misguided,” Judges Jones said. It “does not apply when there is an explicit statutory provision providing for attorney fees,” and Section 330(a)(4)(B) “is an explicit statutory provision that provides for attorney fees to be paid by the bankruptcy estate.”
Judge Jones held that the “American Rule does not bar a fee application for attorney’s fees for services rendered on behalf of the debtor” in a chapter 13 case. He overruled the objection and directed payment of the fees as an administrative priority under the chapter 13 plan.
Even though there was benefit only to the debtor and none to the estate, a chapter 13 debtor’s lawyer was entitled to compensation under Section 330(a)(4)(B), an exception to the so-called American Rule and to standards for compensation generally in bankruptcy cases.
The debtor filed a chapter 13 petition and confirmed a plan in short order. In his July 8 opinion, Bankruptcy Judge Robert L. Jones of Lubbock, Texas, said the lawyer would be paid a $3,700 “no look” fee for services in the case before confirmation.
After confirmation, the debtor’s former wife filed a nondischargeability complaint. The debtor’s counsel succeeded in persuading Judge Jones to dismiss the complaint on motion to dismiss. The debtor was never required to answer the complaint.
The debtor’s counsel filed an application for allowance of an administrative claim totaling $6,260 for services in the dischargeability adversary proceeding. The fees worked out to 15.65 hours at $400 an hour.
The chapter 13 trustee objected to the fee application for the adversary proceeding, claiming there was no benefit to the estate. Alleging that the services benefited only the debtor, the trustee also contended that the American Rule should apply to bar a payment that would reduce the recovery by creditors.
Judge Jones disagreed.