Attorney Fee Application Filed Too Late

Posted by NCBRC - April 17, 2017

Where the debtors’ attorneys filed a fee application as an administrative claim after the debtors completed their chapter 13 plan, the court properly denied the administrative claim and treated the debt as discharged. Cripps v. Foley, No. 16-744 (W.D. Mich. March 31, 2017).

After the debtors, Lon and Deborah Cripps, completed their chapter 13 bankruptcy and the trustee had filed the notice of completion, their bankruptcy attorneys, Dietrich Law Firm, filed a fee application for $642.60 as an administrative claim. (During the course of the bankruptcy, Dietrich Law had filed fee applications amounting to over $13,000 which had been approved and paid through the plan). The trustee objected to the fees as untimely and, while the issue was pending, the Cripps’ were granted discharge. While the court approved the fee application under section 330(a), it found that the fees could not be paid as an administrative claim under section 503.

On appeal, Dietrich Law argued that the Code does not include a time limit for filing fee applications and that approved attorney’s fees are not discharged in bankruptcy. Citing Rule 2016(1) and relevant caselaw, Dietrich Law argued that the court had the power to permit the fee application as an administrative claim.

The district court found that even though the bankruptcy court might have had the power to award the fees, it did not abuse its discretion when it found that the administrative claim was untimely. The court agreed that various provisions in chapter 13 create an “implicit” deadline for filing administrative claims. Here, the fee request was made after the Cripps completed their plan payments and there was, therefore, no longer any plan through which to pay the claim and no plan to modify to accommodate a new or alternative method of payment.

The court turned to Dietrich Law’s argument that its claim should not have been deemed discharged because it was a post-petition debt and discharge applies only to pre-petition debts. The court disagreed, finding instead that, while there is no controlling law on the issue, the bankruptcy court correctly relied on the reasoning in In re Phillips, 219 B.R. 1001 (Bankr. W.D. Tenn .1998) and similar cases which rejected the post-petition claim argument raised here. The district court thus agreed with the majority that attorney’s fees are not post-petition claims under 1305(a)(2).

Finally, the court rejected Dietrich Law’s policy arguments of windfall to debtors and chilling effect on bankruptcy counsel as “general considerations” that do not undermine the bankruptcy court’s “sound reasoning.”

Cripps WD Mich opinion March 2017

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