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PenAir Chief Operating Officer David Richards thought the $156,215 bankruptcy fee was a mistake. The Anchorage, Alaska, airline had been in bankruptcy since August 2017, paying a quarterly fee of about $20,000 that the Justice Department collects from companies in chapter 11. PenAir was one of the first businesses to feel the effect of an increase in the fees the court system is charging companies for going through the bankruptcy process, WSJ Pro Bankruptcy reported. The quarterly fee is now capped at $250,000; the previous cap was $30,000. Some bankruptcy lawyers and financial advisers say the price increase is pushing the cost of bankruptcy to an unaffordable level for businesses, which already are struggling between reorganization and shutting down. Congress passed the fee increase as part of a disaster-relief spending bill in October, and it affects companies operating under chapter 11 protection that spend more than $1 million a quarter on operating expenses. Companies that spend below that amount would pay a fee of $4,875 or less. The new fee system is set to end in 2022, but it will be reviewed each year. If the trustee program account tops $200 million during an annual check on Sept. 30, the higher fees would be suspended for the next year and the old $30,000 fee cap would apply, until its next annual check.

A bankruptcy judge ruled that a consumer bankruptcy attorney has to return client payments in 17 chapter 7 cases where he improperly billed for services and failed to provide appropriate required disclosures, Bloomberg reported. J. Ken Gallon failed to properly disclose his compensation to the court or the source of such payments; he charged unreasonable fees; and he allowed legal fees to be paid before case filing fees were paid in full, wrote Chief Judge Terrence L. Michael of the U.S. Bankruptcy Court for the Northern District of Oklahoma. At the center of the court’s problems with Gallon’s practices was his use of what the court called the “BK Billing Model.” BK Billing is a Utah company that factors receivables for consumer bankruptcy attorneys. It essentially buys the attorneys’ receivables for about 75 percent of their face value. Many, including ABI’s Commission on Consumer Bankruptcy, have highlighted the problem of access to chapter 7 for consumers unable to pay fees up front, because an attorney can’t collect on a pre-petition debt after the case is filed. Currently, many of these debtors are compelled to file for chapter 13, which allows for paying attorneys fees over time, but is also significantly more expensive, time-consuming and far less successful in discharging debts. BK Billing proposes a system where the debtor enters into two separate agreements with his bankruptcy attorney: one for services rendered prior to the filing and another for post-filing, or post-petition, services. Gallon had sloppy record-keeping, and the required disclosures he filed were often inaccurate and failed to indicate when he was paid from advances by BK Billing, which would subsequently collect monthly payments from the client. Worse, the court was “troubled by Gallon’s practice of charging a higher fee to his clients that use the BK Billing Model than to his conventional clients.” However, BK Billing cautions lawyers not to charge clients a premium when they use the company’s services. The court voided Gallon’s post-petition contracts and ordered him to return whatever the debtors wound up paying to BK Billing. He could keep the funds that were paid by the clients directly to him, it said. The case is In re Wright, 2018 BL 318559, Bankr. N.D. Okla., 17-11936, 9/4/18.