Opinion ID: 1577466
Heading Depth: 1
Heading Rank: 3

Heading: Chapter 13 Bankruptcy & Attorney's Fees

Text: According to the record, Cohn represented Chapter 13 debtors in the cases at issue. Chapter 13 is a provision of the Bankruptcy Code allowing debt-ridden individuals to reorganize their financial affairs, paying off debt over a period of three to five years. Bankruptcy proceedings are commenced when debtors (or their attorneys) file a plan for repayment of debts with the bankruptcy court. The bankruptcy court approves the plan by confirming it. If the debtor successfully completes the payment plan, the debtor receives a discharge of all remaining debt. See 11 U.S.C. §§ 1301-07 (2004); see also 11 U.S.C. §§ 1321-28 (2004). As discussed in the testimony before the BPR hearing panel, in bankruptcy proceedings, including those under Chapter 13, the debtor's finances are consolidated into a bankruptcy estate. The estate is overseen by a trustee who, among other duties, approves payments to creditors made out of the estate. The debtor makes periodic payments to the trustee, as established by the court's confirmation order, and the trustee distributes those payments to the creditors in accordance with the debtor's plan. The trustee's duties include approving proofs of creditor's claims filed under, inter alia, section 1305. 11 U.S.C. §§ 1302(b), 704 (2004). Because the trustee represents the interests of the estate, rather than the interests of the debtor, Chapter 13 debtors are permitted to hire an attorney to represent their personal interests in the bankruptcy proceeding. The attorney's fees are paid out of the estate. The Chapter 13 debtor need not receive permission from the trustee to retain the attorney, but payments to the attorney must be approved by both the trustee and the court. 11 U.S.C. § 330 (2004), 11 U.S.C. § 1302; see also 11 U.S.C. § 704(5) (2004); Fed. R. Bankr.P.2016. The bankruptcy code contains two provisions dealing specifically with compensation of attorneys. First, section 330 provides that, in a Chapter 13 case, the court may allow reasonable compensation to the debtor's attorney. 11 U.S.C. § 330(a)(4)(B). [1] Second, section 329 provides that any attorney who represented a debtor in connection with his or her bankruptcy must file a statement of the compensation paid or agreed to be paid. 11 U.S.C. § 329(a) (2004); see also Fed. R. Bankr.P.2016(a) (requiring that the statement be detailed). The Court of Appeals for the Sixth Circuit has held that the code's requirement that attorney's fees be reasonable requires courts to engage in a lodestar analysis when approving attorney's fees in Chapter 13 cases. In re Boddy, 950 F.2d 334, 337 (6th Cir.1991) (holding that attorney's fees in bankruptcy cases must be calculated by determining a reasonable hourly rate for the particular attorney handling the case and then multiply[ing] that rate by the reasonable hours worked on the case.). Testimony before the BPR hearing panel, including that of the bankruptcy judge, the bankruptcy trustee, and two expert witnesses, [2] established that from 1991 to 1998, the normal practice for awarding attorney's fees in bankruptcy cases in the Western District of Tennessee pursuant to sections 329 and 330 was as follows. At the time a debtor retained an attorney to represent him or her, the client and the attorney would agree to a fee for the representation. Then, when the attorney filed the debtor's Chapter 13 case with the bankruptcy court, the attorney would also file a disclosure statement (as required by section 329) setting out the fee agreed upon with the client. If the agreed-upon fee was at or below an amount set by the bankruptcy court as presumptively reasonable (between $700 and $950 at the time of the cases at issue), then the bankruptcy court would approve the fee as a matter of course. That is, the court would not engage in the lodestar analysis required by the Sixth Circuit's In re Boddy decision, and so would not require any documentation of the attorney's time spent on the case. [3] The testimony also established that this fee was understood to cover the attorney's representation of the debtor throughout the entire course of his or her bankruptcy (that is, for the entire three- to five-year period until discharge). The bankruptcy judge, the trustee, and the expert witnesses all testified before the hearing panel or by deposition that because of the high volume of bankruptcy cases handled by both the Bankruptcy Court for the Western District and the local bankruptcy bar, seeking additional fees was extremely rare. However, the witnesses agreed that if an attorney did wish to apply for additional fees due to unforeseen developments in the bankruptcy case, the general practice was for the attorney to submit detailed time records from the inception of the case pursuant to 11 U.S.C. § 330 and Rule 2016.