The Trick To Getting Paid For All Your Work In Chapter 13

Tired of eating fees at the end of a Chapter 13 when the debtor-client gets a discharge and you get a write off of the unpaid fees?

The problem– attorneys fees incurred during the case but unpaid at case end are uncollectible when the debtor gets a discharge.

It happens all too frequently when you have cases with multiple complexities or cases with lots of work after the last payment is made. Or, the client has problems bigger than their current ability to pay you to solve the problem that took them into bankruptcy. You’re presented with the choice of adding your additional fees to the plane and tanking the case, or writing off the time. Neither is appealing.

Or you get to the end of the case and find disputed mortgage accounting issues under FRBP 3002.1. Or you avoided a lien and can only get a final judgment when all the plan payments have been made. But after the last payment is made, the plan can’t be modified to provide for payment of those fees in the bankruptcy case.

Further, I’ve found the Code is unhelpful about when, if ever, the court’s authority to review the debtor’s financial dealings with the debtor ends. Are we free after the last payment to the plan is made to bill the client directly for services rendered after the last payment?

Getting your attorney’s fees to survive discharge

Here’s how my partner and I addressed the problem: a plan provision that provides that attorneys fees approved but unpaid at the end of the case are excluded from the discharge.

We first proposed this in a case called Bingham ( No. 16-53217 MEH Bankr. N.D. Cal. May 1, 2018). The provision read:

Attorneys fees and costs approved by the court but unpaid as of completion of the plan shall not be discharged and shall be paid directly by the debtor to counsel for the debtor notwithstanding the discharge.

We expected pushback and got it. Surprisingly, the more vociferous opposition came from the trustee. She argued that allowing unpaid fees to be collected post discharge upset longstanding practice in the district, might saddle the debtor with new debt as they emerge from Chapter 13, and may permit attorney overreaching.

Nonetheless, the court found support for our proposal in 9th Cir. case law and in Bankruptcy Code S. 1322(a)(2) which provides that a plan “shall provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim“. The debtor’s agreement to this “different treatment” of attorneys fees was evidenced by the plan term.

What we have termed the Bingham Provision was approved.

What’s required

The Bingham court laid out conditions for implementation of the plan provision that turned on full disclosure to the client of the possible consequences of the survival of unpaid fees and discussion in any supplemental fee applications of the liklihood that some part of the fees sought might remain unpaid at plan’s end.

The unspoken requirement, of course, is that counsel have time records to document the work involved, work that ended up exceeding the fees initially approved. I have long advocated for keeping time in Chapter 13 cases given the impossibility of accurately estimating the fees to be incurred over a 5 year plan for a client you’ve just met who lives in a volatile economic world. This issue has only become more salient as Chapter 13 becomes more procedural and as it is used in more complex business cases.

We need to value our time and charge appropriately. The Bingham Provision is a way to collect the attorneys fees in Chapter 13 that you’ve earned.

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