by The National Consumer Bankruptcy Rights Center (NCBRC), joined by the National Association of Consumer Bankruptcy Attorneys (NACBA) and two standing Chapter 13 trustees (Tracy L. Updike, Chapter 13 Trustee for the Northern District of Indiana and Thomas H. Hooper, Chapter 13 Trustee for the Northern District of Illinois), has filed an amicus brief in the Seventh Circuit in In re City of Chicago, (Falkner & Alayah), Nos. 25-2878 & 25-2879. The brief urges affirmance of confirmation orders that permitted payment of debtor’s counsel before distributions to unsecured creditors. At issue is a sweeping and unprecedented argument by the City of Chicago that, if accepted, would fundamentally alter Chapter 13 practice across the country — and effectively make Chapter 13 relief unavailable to many consumer debtors. The brief was drafted by NCBRC Board Member Thomas Moers Mayer of Herbert Smith Freehills Kramer (US) LLP.
Read more: NCBRC Files Amicus in Seventh Circuit to Protect Payment of Debtor’s Counsel in Chapter 13The Issue
The City argues that in below-median Chapter 13 cases, administrative expenses — including court-approved debtor’s attorney fees — cannot be paid until unsecured creditors first receive three years of “disposable income.” In other words, Chicago contends that debtor’s counsel must wait behind general unsecured creditors for payment. The Bankruptcy Court rejected that argument and confirmed the plans. The City appealed.
Why This Matters
This is not a narrow dispute about plan drafting. The City’s theory would:
- Subordinate administrative expenses to general unsecured claims — something Congress has never done in modern bankruptcy law.
- Conflict directly with §§ 1322(a)(2) and 1326(b), which require payment of administrative expenses and trustee fees.
- Make it economically impossible for many debtors to obtain Chapter 13 counsel unless they could pay all fees up front.
- Threaten the viability of Chapter 13 practice in the Seventh Circuit.
As the amicus brief explains, more than half of Chapter 13 debtors are below-median income. If counsel cannot be paid through the plan in the ordinary course, Chapter 13 relief becomes unattainable for tens of thousands of families seeking to save homes and vehicles.
The Absurd Consequences of Chicago’s Position
Perhaps most strikingly, the City’s theory would also:
- Prevent payment of secured prepetition domestic support obligations during the commitment period.
- Elevate municipal parking fines above support obligations and administrative expenses.
- Allow charitable contributions while prohibiting payment of court-approved attorney fees.
Such results are incompatible with the structure of Chapter 13 and Congress’s clear priority scheme.
Why NCBRC Filed An Amicus Brief
NCBRC regularly files amicus briefs in cases that threaten the structural integrity of consumer bankruptcy practice. This appeal presents exactly that risk.
If administrative expenses cannot be paid in the ordinary course:
- Debtors will be unable to obtain counsel.
- Chapter 13 filings will decline.
- Home-saving reorganizations will become rare.
That is not what Congress enacted, and it is not how Chapter 13 has functioned for decades.
What’s Next
The case is now before the Seventh Circuit. A decision will have significant implications for Chapter 13 practice not only in Illinois, Indiana, and Wisconsin, but potentially nationwide.
NCBRC will continue to monitor developments and provide updates.
Briefs
Amicus Brief of NCBRC, NACBA, Trustee Updike & Trustee Hooper
Appellant City of Chicago’s Brief
Appellees/Debtors Brief written by Michael S. Miller of The Semrad Law Firm LLC