Debtor’s Attorney Fees Were Properly Paid Before Creditors in Chapter 13

Posted by NCBRC - April 27, 2018

In confirming the debtor’s chapter 13 plan, the bankruptcy court noted that “[a] debtor’s attorney fees are considered to be administrative priority claims and have priority above other claims . . .[under section] 507(a)(2).” In re Amaya, No. 17-70280 (Bankr. S.D. Tex. April 11, 2018).

In Evette Amaya’s chapter 13 bankruptcy, Propel Financial Services, LLC., filed a proof of claim in the amount of $25,303.63 secured by a tax lien on Ms. Amaya’s homestead. Ms. Amaya proposed a plan providing for two monthly payments in the amount of $1,100, and the remaining fifty eight monthly payments in the amount of $1,200. The plan specified that both Ms. Amaya’s counsel, to whom she owed $2,968.00  and Propel would be paid pro rata from month one through month fifty eight of the plan. The plan also provided that, subject to disposition of an avoidance motion, secured creditors would retain their liens. The trustee had her own internal distribution procedures under which she would pay Ms. Amaya’s counsel prior to other creditors.

Propel objected to confirmation on two bases. First Propel argued that the “[p]lan proposal to pay Propel’s claim with interest, pro rata over a period of 58 months rather than in fixed, equal monthly payments from month one, coupled with Trustee’s policy of paying administrative claims prior to distributing funds, pro rata, to creditors violates the equal monthly payment requirement of section 1325(a)(5)(B)(iii)(I).” Second, Propel argued that the plan did not appropriately address disposition of its lien in the event of dismissal or conversion.

The court noted that the requirements for plan confirmation under section 1325 are distinct from the trustee’s obligations under section 1326 and that administration of chapter 13 plans is necessarily flexible. The trustee “must balance her directives under the Code and make distributions in accordance with the terms of a confirmed plan.” Under section 1326(b), priority administrative claims, such as the debtor’s counsel fees, were appropriately paid before or in conjunction with other creditors. Furthermore, citing its sister court in In re DeSardi, 340 B.R. 790, 808 (Bankr. S.D. Tex. 2006), the court found that once monthly payments to creditors are commenced they must be equal until they cease but that such fixed payments need not extend over the entire course of the plan. Under these two provisions, the court concluded that the trustee complied with the Code in paying the debtor’s attorney before commencing payments to Propel.

The fact that plan payments were to be made to Propel on a “pro rata” basis rather than in specified fixed amounts, also did not violate the equal monthly payments requirement where Ms. Amaya’s contributions were in equal monthly installments “of $1,100.00 and $1,200.00, respectively” and payments to Propel were not subject to change over the course of the plan.

The court turned next to Propel’s contention that the language in the plan concerning retention of liens by secured creditors did not satisfy section 1325(a)(5)(B)(i)(II)’s requirement that the plan provide for a creditor to retain a lien in accordance with nonbankruptcy law in the event that the bankruptcy case is dismissed or converted. The court found that though the language in the plan did not track the statutory language, it was sufficient to achieve the same result.

The court therefore overruled Propel’s objection and confirmed Ms. Amaya’s plan.

Amaya Bankr SD Tex opinion April 2018



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